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2019/07/15 / Erste Group Research

CEE Market Insights

Dovish Fed minutes did not support the CEE FX market, as most of the currencies weakened last week. The strongest decline was observed in the Hungarian forint, which depreciated by 0.6% last week. Apart from global factors that affected HUF, lower than expected inflation for June, posed additional pressure on the currency. Due to easing price pressure, we do not expect any tightening step to be announced by the central bank this year. The PLN and CZK followed the HUF and also depreciated, although to a lesser extent.

L ast week’s behavior of the global and local FI market is somewhat surprising to us. Over the course of the week, 10Y German Bunds went up by more than 15bp and closed the week at around -0.2%. Such development is contradictory to the dovish testimony of Fed Chairman Powell and market certainty about a rate cut in the US at the July rate-setting meeting. The CEE bond market followed core developments and the long end of the curve mostly shifted upwards. The most visible move north was observed in Hungary, Poland and Slovakia. As an aftermath to the decision on a rate cut in Serbia, the short end of the local curve plummeted by roughly 20bp.

Week Ahead: Summer will be hot in Romania, as it seems that officials have realized that fiscal expansion has reached its limits and they need to act in order to keep the deficit below 3% of GDP. The Romanian Ministry of Finance is preparing a package of fiscal measures worth 0.4% of GDP that should be officially presented by the end of this month. So far, cuts in special pensions and some social spending have been discussed in the media. In the Czech Republic, Social Democrats are getting closer to quitting the government of PM Babis, who will need to seek support for his minority government (and new ministers) in the parliament. This week, Poland will be the first country in CEE to publish industrial output and retail sales data for June. That means we will have a complete set of indicators for the final run of our GDP now-cast model for 2Q. At the moment, our now-cast indicates above 5% GDP growth of the Polish economy in 2Q19. On Friday, Fitch Ratings may upgrade Slovenia’s sovereign rating by one notch, or at least change the outlook to positive.

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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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