News
RO: Positive – MinFin sells RON 1bn 1y t-bill at 6.73% vs. 6.64% last time (p1)
TK: Negative – August CPI comes in way above consensus at 6.7% yoy, core accelerates to 6.2% yoy from 5.4% yoy (p2)
RU: Dovish – Aug CPI declines 0.2% mom slightly below cons (p1)
Today’s Events
BG: final 2Q GDP / CZ: July industrial output / CZ: July trade balance / HU: 3M t-bill auction / RO: final 2Q GDP / RO: July industrial sales / SRB: 18M t-bill auction / SK: final 2Q GDP / TK: zero 2013 and Jan 2020 TURKGB auction
EEMEA Markets
* Global backdrop: Massive risk aversion hit markets with Bund tightening to all time lows (10y below 2.00%) whilst DAX plummeted 5.3% yesterday. EUR/USD basis swaps tanked to fresh lows, whilst SnrFin credit spreads gapped about 60bp. Asian markets are down 1.5% O/N and S&P futures declined by about 30points The open looks clearly bearish for CEEMEA markets. In this environment we see: 1) POLGB long end performance to follow Bunds given multi-year wide spreads, 2) EUR/HUF vulnerable to break into new trading range, 3) FX hedged HU t-bills as attractive, 4) TURKGB to extend rally despite high CPI and 5) recommend taking profit on RUB payer positions
* Poland: We believe POLGBs could benefit from the sharp Bund rally we observed in the last few days. With 10y Bund below 2.0% the gap versus 10y POLGB has widened to multi-year highs of around 370bp. With asset swap spreads beyond the 10/17 POLGBs trading outside of the last 6M range we believe particularly the long end POLGB curve could continue to play a catch up. In standard deviation terms we currently see the 10/19 and the 10/21 POLGBs as the cheapest papers on the curve (both ASW around 3stdev wide). The main risk to long POLGB and short ASW seems to be ongoing deterioration of the credit market with 5y Poland CDS widening about 65bp since the beginning of August (it outperformed yesterday). On PLN we would remain neutral at current levels but keep a close eye on the BGK activity around the 4.20 area.
* Hungary: Although HGB/Bund spread has also widened (but not at historical highs) we are worried about the HUF in the current environment. Apart from the well flagged fundamental risks EUR/HUF looks to break into a new trading range soon from a technical perspective as well. The 50day moving average is about to cross the 200day moving average from the bottom (270.18 vs. 270.57). Since 2007 the “golden cross” has happened only 3 times. In these three instances EUR/HUF jumped an average 5% in the following 3 months which would be equal to around 290 this time around (see chart). We continue to see very good value in FX hedged t-bills. The AKK will auction 3M papers today (HUF 50bn on offer). According to bbg mid prices the hedged position offers about 230bp positive carry.
* Turkey: Inflation was above the consensus but swaps collapsed by 20/25bp across the curve albeit at relatively low liquidity.Today the Treasury will auction the 2013 bmrk and the Jan 2020 long end TURKGBs. We expect solid demand as cash bonds look very cheap compared to the cross on the currency curve. The spread vs. the CCS curve on the short end is around 200bp whilst it is 230bp on the long end. Both are about 100bp above the last year average.
* Russia: The August CPI showed the first mom decline (neg. 0.2%mom) since 2005 and this has pushed the yoy CPI to 8.2% yoy. The deceleration will surely be welcomed by the CBR and we expect them to leave rates unchanged at the rate setting meeting. Meanwhile, we note that RUB CCS rates seem to be only one in the CEEMEA region that did not benefit from lower global rates, which is related to its close correlation to RUB and banking sector liquidity. We have played this story via a 2y RUB CCS payer which so far has provided about 35bp profit (taking into accont the rolldown and carry). As RUB rates are now the cheapest rates to receive in the region we recommend taking profit on our 2y payer positon at current levels.
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Gyula Toth
UniCredit Research