News
BG: Mixed – Cabinet reshuffle of some top positions (p2)
HR: Positive – Croatia meets the justice and fundamental rights conditions for EU accession (p2)
HU: Mixed – March wages lower than expected, down 1.4% yoy on the high base effect (p2)
PL: Positive – Govt auctions PLN 3bn 2016 POLGB, yield – 5.614%; bid/cover ratio – 4.34 (historical high in this segment) (p2)
RU: Negative – April IP slows to 4.5YoY from previous 5.3%YoY; FinMin sells RUB6.9bn from auctioned amount of RUB20bn in 3Y OFZ; yield – 6.6% (p3)
Today’s Events
HU: HUF 20bn 2014. HUF 15bn 2017 and HUF 10bn 2022 HUNGB auctions / RO: RON 0.5bn 2016 ROMGB auction / RU: Reserves as on May, 13 / SK: April Unemployment / SRB: RSD 2bn 6M t-bill auction
EEMEA Markets
Wednesday saw the Hungarian government’s negotiations with the domestic banks return to the headlines, a reminder that while the government had made significant progress in winning back credibility YTD, weak spots remain. So where to next in Hungary? From a domestic perspective much of the positive newsflow is now behind us. The government has successfully accessed the market and raised sufficient FX for the year, the convergence programme is published with the government’s fiscal plans while the improvement in the relationship between the IMF, EU, NBH and government has materialized. What was a very underowned market at the beginning of the year is no longer as foreigners increased their holdings of HGBs by 25% YTD or EUR 2.5bn. Meanwhile, neither inflation nor the currency gives the NBH any reason to change rates any time soon. In terms of domestic newsflow, the next real issue to point to is the passage of the next set of fiscal reforms which probably will not come into play until 4Q when the 2012 budget must be passed by parliament. Given past experience the rating agencies are reluctant to move and may wait for evidence of fiscal consolidation surrounding 2012 budget. With this in mind, Hungary may end up trading more in line with global risk factors than has been the case more recently.
Elsewhere, Polish wages came in at a higher than expected 5.9% yoy. Combining this with employment growth of almost 4% yoy the labour market is clearly showing signs of strengthening. Note that Germany and Austria opened their labor markets to the new EU states this month also, which is likely to translate at least at the margin into pressure on wages. That said wage growth remains well below its double digit pre-crisis peak. In line with this NBP statements on Wednesday suggest a small chance of another near term rate hike.
Gillian Edgeworth,
UniCredit Research