News
CZ: Positive – MinFin sold CZK 8.2bn CZGB 2.75/14: yield 1.65%, bid/cover 2.34 (p2)
KZ: Neutral – Minfin placed KZT 10bn (EUR 50mn) in 13Z t-bonds: yield 5.0% (p2)
Today’s Events
CZ: Policy rate announcement / CR: August Unemployment / HU: HUF20bn 2014/D, HUF15bn 2017/A and HUF8bn 2022/A auctions / PL: PLN1bn 2015 and PLN3bn 2021 floating rate POLGB auctions / RO: RON400bn 2021 ROMGB auction / SRB: RSD4bn 6M tbill auction / RU: International reserves as of Sept, 16th
EEMEA Markets
Global backdrop: deteriorating sharply again after the Fed signalled significant downside risks to the US growth outlook. In line with the USD smile view this has led to sharper dollar appreciation with DXY moving above the 78.00 level. US and Asian equities were down more than 2% whilst EUR/USD approached the 1.35 level. In Asian FX markets KRW tanked more than 2% against the greenback. The tone for CEEMEA market open is clearly negative this morning and we might be lucky if the FX losses do not reach the KRW level.
YTD performance of EM local debt benchmark turns negative. The YTD performance of the main local currency EM debt benchmark (FX unhedged JPM-GBI composite index) just turned to negative yesterday. The USD based index lost about 8.5% this month erasing all the YTD gains. As EM bond funds still saw inflows even during the last week the major loss of the JPM-EM index could see a serious deterioration of the flow backdrop (we potentially start to see outflows from here).
Hungarian HGB auction (the planned amount is less than usual at HUF43bn) will be a key sentiment test. Despite better entry levels (long end HGBs above 8%) we will hardly see any local demand whilst non-resident investors could also prefer to stay on the sidelines given the above outlined flow backdrop. Against this backdrop not much good is waiting for Hungarian markets today. From strategy perspective we stay U/W in all Hungarian asset classes. For leveraged investors we continue recommend a 2Y HUF payer whilst we note that our EUR/HUF long we opened last week will likely reach our target level at 295.00 today.
Czech National Bank will hold a rate setting meeting today. We expect unchanged rates but look for a very dovish statement on the back of deteriorating growth outlook. We continue to prefer Czech assets in CEEMEA as attractive defensive plays and would remain O/W in all asset classes.
Romania: demand at today’s 10y ROMGB auction could also be seriously challenged despite Romania is not part of the GBI benchmark. Although we remain structurally positive on Romanian markets in the near term we see risk reward in favour of paying short end (2y RON ccs) as the NBR will likely try to control the depreciation pressure of the RON. In CEEMEA countries where the central banks tend to defend their currencies with higher rates or banking sector liquidity squeeze short end rates already blown up (HUF and RUB). RON rates are still lagging. Against this the 2y RON CCS at around 4.90/5.0% looks relatively low particularly vs 3M FX forward implied RON yields which are at around 5.40%. This implies that paying 2y RON CCS has currently a positive carry which is attractive in our view. Though not the most liquid market in our understanding about 5-15k DV01 is possible. We hence see logic in paying 2Y RON CCS at 5.0% with a target at 5.75%. The carry on the position is about positive 3bp per month. We would set stop loss at 4.75%.
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Gyula Toth
UniCredit Research