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Erste CEE Macro Comments

PL Rates: The MPC kept rates at 3.75% yesterday. 'Uncertainty about consumer demand, sluggish labor market and slow recovery of fixed investment' were cited as the reasons for keeping key rates on hold.

A new prognosis was unveiled with a 2010 inflation estimation of 2.8-3.7%, roughly in line with our expectation (3%). Our main take-away from today's meeting is that Governor Belka still wields a lot of influence - he again spoke before the meeting against hiking rates too quickly which few members had previously suggested after higher-than-expected January inflation data. We remain convinced that the curve is pricing in an overly aggressive cycle of rate hikes – an increase of 70bps in the 6x9 FRA is too high in our view. We expect the MPC to hike next in 2Q11, June probably, and then again in October with risks skewed to the downside (the economic recovery is not that fast and fiscal consolidation will be required in 2012).

PL Fiscal: Regarding fiscal tightening, MinFin Rostowski said that the government remains committed to bringing the deficit down to 3% by 2012 (from 7.9% in 2010) but we remain skeptical that this will be achieved. So far, VAT has been increased and pension reforms were initiated which, based on our calculations, will decrease the deficit to around 4.5%. More work remains to be done as structural weaknesses in the budget remain largely intact. We expect long end yields to move sideways over the remainder of this year.

TR Macro: CPI inflation in February stood at 0.73%, broadly in line with the market consensus of around 0.7%. 12-month inflation declined to 4.2% from 4.3% in January, mostly on the back of high base of last year's food prices. Monthly inflation in almost all categories was nil, 0.72 points coming from food. CBT's favorite core index rose by 3.8% over last year, picking up from 3.2% in January. We see no significant pass through from oil prices and exchange rate for now. February outcome confirms our view that CBT will to stick to its wait and see approach in its March meeting to be held in March 23rd.

Traders' comments:

HUF: The Forint caught a bid after the recent sell-off following the announcement of the long awaited fiscal package. The lack of a sell-off followthrough in the midst of increased volatility in major equity markets worldwide boosted positive sentiment in the local bond market as yields came down and flows increased. 2y IRS tagged along and traded around this years low of 6.38%, 32 bps below the high in mid January, but ASWs tightened as the drop in bond yields outpaced the reduction in swap rates.

PLN: A large international account was seen selling 10y bonds around midday yesterday which drove the price on DS1020 down 30 ticks. The steepening trend continued after the MPC decision with 2y IRS falling 5 bps. We expect the steepening to continue at least short-term.

RON: RON cross currency swaps continue to edge higher with little activity in cash markets. The focus will be on the 3y auction today. We expect the average yield to come in around 7.25% with an asymmetric risk toward higher yields and lower than planned allocations.

HRK: HRK bonds are well bid after a strong T-Bill auction on Tuesday with the 2020 benchmark bond paid at the offer amid continued demand for the bond. SKK: Locals showing increased interest in longer dated bonds.

CEE CDS & Credit: The SovX CEE remains firmly in the middle of the 198 – 217 bp range with its origins in December 2010. Weakness in major equity markets leaves the credit markets largely underwhelmed in general. Yesterday, CEE CDS were stable even as equities sold off. Once equities began to recover towards the end of the session, some individual names actually tightened. This has been a recurring pattern for months. All eyes will be on the ECB today as the Bund future comes under renewed pressure.

Sursa: http://www.erstegroup.com

Tags: around inflation rates

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