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Erste CEE Macro Comments

RO Budget + FX: The consolidated state budget ended January with a surplus of 0.15% of GDP. Total revenues increased by 3.6% y/y with a staggering 28% jump in VAT revenues while expenditures declined by 2.1%, as major contributors (personnel, social and capital expenditures) were lower than in January 2010.

The budget deficit target agreed with the IMF for 2011 (cash standards) is 4.4% of GDP. We see it as attainable without any additional tax increases or expenditure cuts. Against the backdrop of renewed optimism of foreign investors, the RON appreciated to an eight-month high of 4.204 on Friday. We foresee a EURRON FX rate of 4.1 in December.

RO Politics: This week, the government will ask for a confidence vote in the Parliament for the reform of the Labor Code in an attempt to speed up the adoption of the law. A more flexible labor market and greater labour force participation, especially among young people, are top requirements of the IMF but also of foreign employers. As the ruling political coalition seems well united, we think that the government will survive this confidence vote. As a result, we see no significant negative impact on capital markets.

UA Macro: According to the preliminary estimate of balance of payments for January, the current account balance amounted to USD 282mn. Although the final figure may still be a subject to significant revision, we have likely witnessed the first positive balance since June 2010. However the positive balance may prove short-lived as oil prices are surging. Oil and petrol imports represent 7.7% of GDP and will take a significant toll on the current account balance. So although the news is bond price and exchange rate positive, it is outweighed by the recent rise in oil prices. We expect bonds and the currency to gain during the year, though this forecast is threatened if oil prices increase further.

Traders' comments:

RON: With RON appreciating against the EUR and RON cross currency rates continuing to move up, there is speculation in the market that thin conditions and the conversion of the latest IMF tranche into RON is driving prices rather than any change in market sentiment.

HUF: HUF markets were the main beneficiary from the positive mood on Friday. The 2y10y IRS spread continues to flatten ahead of the budget announcement scheduled for March 1st.

PLN: The bond market is steady ahead of the rate announcement this Thursday after the psychologically important level of EURPLN 4.0000 was tested and held last week.

HRK: 2014 & 2015 Croatian Eurobonds traded on the offer side and are still well bid whilst the domestic market remains quiet. Prices on Euro linked bonds are rising as EURHRK appreciates.

CEE CDS & Credit: SovX CEE rallied on the back of the relief rally in major equity indices and the drop in oil prices. We have been lifted in MOL. The BB+ rated Hungarian oil company has 2 Euro denominated bonds outstanding. The 3 7/8 2015 currently prices around ASW 248, down from levels around 370 at the beginning of the year. The 5 7/8 2017 prices around an ASW of 316, 118 bps lower than this years high. MOLs share price is also up roughly 15% ytd.

Sursa: http://www.erstegroup.com

Tags: prices balance market euro

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