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2019/06/17 / Erste Group Research

CEE Market Insights

Currencies were mildly up in CEE last week, apart from the Hungarian forint, where investors are increasingly pricing in the accommodative policy of the central bank. It would not be a huge surprise to see the HUF weaken further. Elsewhere, appreciation was mild. The EURCZK has now approached levels where we see it at end-3Q19, and thus, further appreciation is getting less likely. The Romanian leu also fared well with the global sentiment, but in the longer run, we see it as difficult for the leu to appreciate, given the combined deficits of the current account and fiscal budget.

T he greatest yield decline happened in Croatia with 10Y yields plummeting by around 25bp last week alone. The upgrade by Fitch to ’BBB-’ with the outlook kept at positive was a trigger, additionally to the successful Eurobond sale in the amount of EUR 1.5bn in 10Y bonds, while the order book reached EUR 5.5bn. The recent downward move in yields was very aggressive, which could make some investors think about profit-taking in Croatia. In Serbia, events are also picking up some steam, as the country is set for a roadshow to issue euro-denominated bonds to buy back more costly dollar debt in the amount of USD 1.1bn.

Week Ahead: This week, the release calendar will be rather empty. Besides current account data for Serbia and Hungary, a few countries will release their PPI data, but the most important data will come from Poland on Friday. Poland will publish Industrial output for May, which is likely to confirm a continuation of strong economic activity in the largest CEE economy. On Tuesday, the Romanian Parliament will hold a no-confidence motion against the government of PM Dancila. So far, it seems that the opposition will be short of votes to succeed in the motion. The Hungarian market should start to position itself ahead of next week’s MPC meeting, where no change in rates is expected, but a new inflation forecast will be discussed. It is pretty clear that international sentiment has turned more dovish, giving sufficient reasons to the Hungarian central bank to postpone the normalization of its monetary policy, while new inflation forecasts could point in a different direction. If so, the HUF could react with a slight weakening. After last week’s successful Croatian Eurobond issue, Serbia might be another country from the region to soon tap the international market with a EUR-denominated issue.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-
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