News
CZ: Neutral – CNB leaves policy rate unchanged at 0.75% (p2)
KZ: Neutral – MinFin places 6Y GB KZT 4.3bn (EUR 20.5mn) (p2)
RO: Neutral – MinFin auctions RON 0.3bn in 2011 ROMGB: yield – 7.47%; bid/cover – .3.21 (p2)
TK: Neutral – MPC leaves policy rate unchanged at 6.25%, no fine-tuning of RRR (p2)
Today’s Events
CZ: June Consumer and Business Confidence / HU: April Retail Trade / KZ: KZT 12bn 2022 GB auction / SRB: May Wages / RU: Money supply as of 20 June / TK: June Ind Confidence and Capacity Utilisation / UA: May Money Supply
EEMEA Markets
Both the Czech National Bank and the Central Bank of Turkey kept rates on hold yesterday and the market reading was clearly dovish. Although market participants were waiting for hawkish signals from Turkey (in the form of a potential RRR hike or at least a tougher statement) the bank stuck to its policy and TRY has depreciated versus the basket accordingly (1.97 vs. 1.91 one week ago). The market reading was also dovish in the case of the Czech Republic with CZK IRS dropping by 10/12bp whilst EUR/CZK moved above 24.40 for a while.
The dovish outcome failed to help TURKGBs and TRY rates, as the market is clearly increasingly worried about a potential monetary policy mistake. Meanwhile, as we highlighted in our CEE Quarterly, we believe the CZK curve is too steep versus the backdrop of the global slowdown and dovish Central Bank outlook. We hence continue to recommend bullish positioning in CZGB duration. In the case of Turkey, we believe the longer the CBT delays policy tightening or even signalling it, the more confused the market might become. Although in the near term it could lead to a steeper yield curve we believe the TRY curve should in fact be much flatter and we continue recommending TRY 2y/10y receiver. For real money investors we recommend mod short duration in TURKGB.
We understand the 10y ROMGB auction went relatively well as the MinFin received bids of RON 943mn and sold RON 293mn at an average yield of 7.47% vs. an average yield of 7.45% in May. Meanwhile, RON remained relatively stable despite the clear risk off mood in CEE markets. We continue to recommend the long RON/HUF position we entered yesterday with a target of 65.25 and stop loss of 62.80. Our main rational is converging FX forward implied yields and potential FX liquidity shortage in the Hungarian banking sector.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/06/EEMEA-daily-240611-final-2.pdf
Gyula Toth
UniCredit Research