CZ: Neutral – May foreign trade surplus rises to CZK 14.4bn (p2)
RO: Neutral – Govt sells RON0.7bn 3Y ROMGB: yield – 7.09%, bid-to-cover – 2.6 (p2)
SRB: Neutral – MPC cuts interest rates 25bp to 11.75% (p2)
Today’s Events
CR: June PPI / CZ: May Construction and IndOut / HU: May Trade balance / KZ: KZT 13bn t-bill auction / RO: May IndOut / SK: May IP and Trade balance / SL: May IP and Trade balance / LT: June PPI / LV: June CPI, (08-12) June Unemployment / RU: Money supply as of 4 July / TK: May IP
EEMEA Markets
EEMEA markets performed well following the supportive US labour market data and the announcement from the ECB that it will remove rating threshold for Portugal bonds. The sharp move and light volumes in many risky assets however suggest that the bulk of the move was positioning related. Hungary once again proved to be the best performing market as the HUF has breached the key 263 level. From here we will watch the 261.20 level which could from technical perspective open the way to 240 level. We continue to play the Hungarian story through HGBs which still lag the move in our view. We still recommend 22/a papers running into the june inflation release.
Serbia: The NBS cut interest rates 25bp to 11.75% In explaining the decision the Executive Board’s press release noted the positive effects of food price disinflation on consumer price developments but added that the full effect of global wheat and corn price falls was yet to flow through to the economy. In our opinion the only reason the cut was 25bp rather than 50bp was the re-emergence of fiscal risks following comments by the Fiscal Council after last week’s passage of a fiscal decentralization bill which adds approximately 1pp of GDP to the FY fiscal deficit. We also see it as important that the NBS has signalled the easing cycle will slow if the fiscal position of the country continues to deteriorate. That said, we continue to expect cuts in the policy rate in coming months, with the September meeting possibly containing a larger cut (>50bps) on the back of favorable base effects on headline inflation. In our view this will continue to support ongoing inflows into the local t-bill market. Meanwhile EUR/RSD jumped back to close to 102 level again. We consider this level attractive to add fresh short positions with a potential target around 98.00.
Romania: Yesterday’s 3Y Benchmark auction came very strong with total demand coming at RON1.8bn vs RON500mn offer.. The allocated amount was increased to EUR702mn with an average yield of 7.09 (maximum accepted 7.12). Separately we note that OMV Petrom announced a significant onshore gas discover which might support the secondary offering starting next week. The deal should bring about EUR600mn with likely significant non-resident participation. We remain short EUR/RON we initiated this Monday.
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UniCredit Research
UniCredit Corporate and Investment Banking Unicredit Bank AG