News
RO: Positive – budget deficit shrinks to less than 1.4% of projected GDP (p2)
KZ: Neutral – Money base shrinks 2.2% mom (-1.0% momsa) (p2)
Today’s Events
HU: HUNGB 3M t-bill auction / LN: May Retail Trade / RO: May Money Supply / SRB: RSD10bn 53M t-bill auction / SK: June Consumer and Industrial Confidence, May PPI
EEMEA Markets
CEE markets traded sideways yesterday with the most interesting part being that the SPX rally failed to have any meaningful follow through in FX markets and also in EUR/USD. We put this down to ongoing uncertainty around the Greek vote but our base case is that the vote will go through. Meanwhile the data calendar was very light yesterday with only Romanian YTD budget execution grabbing some headlines. According to the published figures the Jan/May budget deficit is only 1.4%/GDP and it is 55% below the level it reached in the same period last year. We believe the supportive YTD numbers mean that the annual target of 4.4%/GDP is achievable even if we calculate with some extra spending ahead of the 2012 elections. The supportive budget development is one important reason why we remain structurally bullish on Romanian markets. In this vein we would remain long RON/HUF and Romania 5Y CDS seller versus 5Y CDS buyer in Turkey.
Meanwhile, we note that non-resident bond holding in Hungary has reached a new all time high at HUF 3508bn which is around 40% of the total outstanding government bonds. We also note that following the cancellation of the government bonds held by pension funds the share of non-resident bond holders will increase by about 10%-points. In our view heavy non-resident exposure represents a key risk to Hungarian markets going forward. We prefer to express this view via the long RON/HUF position but we would also think about paying short end rates which appears to be cheapest rates paying opportunity in the EM world. We also note that the weekend Chinese pledge to invest in Hungarian bonds has yet to have a meaningful impact on markets. We believe this is to some extent due to the lack of clarity on timing and size. In our view this investment could primarily happen through Eurobonds but given the government has already covered the external funding needs for this year the timing could be closer to the end of this year (Hungary has a repayment need of EUR 3.7bn to the IMF/EU and another EUR1.7bn as Eurobond maturities in 2012).
We will keep a close eye on the Serbian 53 week t-bill auction today (RSD 10bn on offer) which could be an important sentiment test toward the Balkan region. Meanwhile EUR/RSD moved slightly higher yesterday and was trading around 101.50 just above the 100 day moving average and back to April 2011 levels.
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Gyula Toth
UniCredit Research