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Erste CEE Macro Comments

HU Fiscal: Yesterday, the government reported that the cumulated budget deficit reached HUF 560bn or 81.4% of the FY target in February.

One year ago the cumulated figure stood only at 40.3%. The cabinet said that one-off income and saving measures were not yet reflected in the numbers. If one adjusts the figure for future crisis tax income, the asset takeover from the pension fund industry and the HUF 250bn savings decided upon in January, the deficit should be around HUF 372bn or 54% of the FY target. The report is not encouraging and exposes the need for a strict fiscal reform to handle the structural imbalances of the budget.

HU Base Rate: Yesterday, the government nominated 2 new members to the MPC. The new members are not well-known to markets but they are familiar within the Central Bank. One of the new rate setters, Ms. Andrea Bartfay-Mayer, was deputy manager of financial stability at the CB in 2006-07. Mr. Ferenc Gerhardt, the other new member, was nominated for vice governor by the then CB governor Zsigmond Jarai but was rejected by the PM in 2007. With the inclusion of these new members, the majority of the MPC is still in the hands of the 3 incumbent members, including Governor Simor. The government may have wanted to demonstrate that it is not its intention to undermine CB independency. However, the cabinet can nominate two additional members at any time and create a new majority in the MPC. We expect no strong change in monetary policy as a result of the nominations and forecast a rate cut before year end. The forint and long term yields are fairly priced at current levels in our view.

TU macro: Industrial production in Turkey posted 18.9% growth in January over last year, higher than the market consensus of around 14.8% and our expectation of 16.2%. Thanks to robust domestic demand and investment sentiment, growth in the first quarter is likely to be strong as well. In seasonally adjusted terms though, growth over December was moderate at 0.5%.

PL Central Bank: The inflation report showed that the MPC voted on a rate hike in each of its sittings since August with Governor Belka voting against a hike before relenting in January. Anna Zielinska-Glebocka confirmed her hawkish credentials and said that the 2Q would be a good time for another hike while her collegues Gilowska and Chojna-Duch underlined their dovish stance. We believe that 2-3 hikes from the ECB would result in an additional NBP rate hike compared to our baseline forecast of 50bp by the end of the year. We expect the zloty to firm while yields should move sideways.

RO Bonds: The MinFin sold 1Y T-bills worth RON 600mn at 6.92%, up from 6.88% at the previous auction in February. Demand was strong and investors submitted total bids worth RON 1.2bn. With the fiscal consolidation program well on track and another agreement with the IMF and EC a done deal, we foresee 5Y yields at 6.6% in December.

Traders' comments:

CEE Government Bonds: CEE FX have been solid since the turn of the year with RON, HUF and CZK stronger versus the Euro. PLN has been the underperformer and HRK has been virtually flat. At the same time, 2y IRS have been trending upwards with the strongest relative move in CZK. Interest in the cash bonds, particularly at the long end in fixed rate bonds, has been muted as markets assign an increasing probability to rate hikes. Volumes have been strong of late in HRK bonds where the market anticipates a new Eurobond to replace the €750m issue that redeems on the 14th. The Ron 1y T-Bill auction priced just below market expectations of a 6.95% average yield and the Slovak SD215 €200m tap (2013 FRN) was in line with the market at an ASW of 42 bps. CEE CDS & Credit: CEE CDS had an uneventful day yesterday as the SovX CEE bobbed around the lower end of a 3 month range. Sid Banka (the Slovene Export and Development Bank, guaranteed by Slovenia, Aa2/AA/AA) tapped the market yesterday with a €350m increase of last year's €750m Apr '15 issue. The bonds priced at m/s +103, below revised +105 area talk after initial +110 area guidance.

Sursa: http://www.erstegroup.com

Tags: euro bonds market members

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