News
CZ: Positive – 1Q GDP revised upward to 0.9% qoq SA and 2.8% yoy / Hawkish – May CPI rises 0.5% mom and 2.0% yoy (p2)
PL: Positive – Govt auctions 2Y GB, yield stood at 4.84% (p2)
RO: Mixed – April export growth rate decelerates 16.7% yoy / Govt auctions RON 0.5bn in 2014 ROMGB: yield – 7.18%, bid/cover – 2.6 (p2)
SRB: Dovish – National Bank of Serbia cuts policy rate 50bps to 12.00% (p2)
Today’s Events
RU: April Trade balance
EEMEA Markets
A dovish day for CEE: While Trichet went ahead and signalled a rate hike in July, data flow over the past couple of days from CEE has been uniformly dovish. Following their fourth 25bp hike this year on Wednesday, NBP Governor Belka signalled that the central bank in Poland will take a break in terms of further tightening for now. Meanwhile detailed Q1 GDP data for Czech, Hungary and Romania over the past couple of days points to persistent weak domestic demand across the region. Seasonally adjusted all three countries showed decent gains in GDP in the first quarter (0.9%, 0.7% and 0.7% in Czech, Hungary and Poland respectively). However domestic demand remains lacklustre. For example despite cutting personal income tax rates, private consumption contracted by 0.9% QoQ in Hungary, its third quarter of contraction in four. In Romania private consumption fell 0.5% QoQ, its third consecutive quarter of contraction. In Czech household consumption was revised upwards for Q4 but fell by 0.7% QoQ in Q1. Inflation for May surprised on the upside in Czech, moving back in line with the CNB’s 2.0% YoY target but as per the CNB’s statement, the overshoot was down to food prices while core inflation remain contained. Finally adding to the mix, Serbia surprised us by cutting its policy rate 50bp to 12.0%. Looking ahead the case for an aggressive tightening of monetary conditions in most if not all economies in the region between now and year end seems weak. On top of this detailed GDP data, the PMI data quarter to date has been weak while favourable base effects for inflation kick in in H2, helping bring inflation back in line with central bank targets in a variety of countries in the region.
Romania borrowed EUR 1.5bn on Thursday through a 5Y EMTN at 5.298% (255 bps over mid-swaps), according to Thompson Reuters. Total bids amounted to EUR 3bn. The news is positive because the EMTN extends the average maturity of Romania’s sovereign debt. At the same time, the yield is higher than for previous euro-denominated bonds (5.17% in March 2010). The yield looks attractive, the spread over mid-swaps exceeding Romania’s 5Y CDS by 19bp. The MinFin postponed issuing EMTNs (and considered shorter maturities up to 3Y) in an attempt to keep yields below 5%, but falling CDS spreads have been offset by higher EUR swap rates.
Gillian Edgeworth / Dan Busca
UniCredit Research