News
CEE: Neutral – Economic sentiment indicator provides a mixed signal but slowdown is becoming more evident
HU: Negative – 12M t-bill auction is seriously undersubscribed, bid/cover ratio at 0.75 is the worst ratio ever (p2)
PD: Negative – 2Q current account deficit EUR1bn wider than consensus due to revision in trade and service deficits (p2)
RO: Dovish – NBR keeps rates unchanged suggests rate cuts might come / Negative – Nokia to close its Jucu factory in 2011(p2)
Today’s Events
BG: August PPI / CR: August IP, Trade balance, 2Q C/A / HU: 2Q C/A/ KZ: 2Q C/A/ PL: NBP September Inflation expectations / SRB: 2Q GDP (final), August IP, Retail trade and Trade balance / RU: 2Q C/A / SL: September CPI, August Retail trade / TK: August C/A
EEMEA Markets
* Global backdrop: European equities are opening about 0.5% weaker whilst EUR/USD fell back again to the 1.35 level. Meanwhile the September market turmoil took its tool on business sentiment with the EMU ESI falling to 95.0 from 98.3. We expect similar size of deteriorations in the forthcoming PMI numbers. The Chinese Sept PMI managed to remain unchanged at 49.9. The EPFR bond fund flow data published this morning show that EM bond funds had USD3.2bn outflow last week. This is the biggest weekly outflow in absolute term on the record.
* Hungary: bid/cover at yesterdays 12M t-bill auction at 0.75 is the worst on record despite the AKK offered less then usual amount at HUF40bn vs. HUF50bn. We believe the prime reason of the poor results is the lack of resident bank participation which are now preparing for the forthcoming losses from the FX mortgage repayment scheme. In terms of strategy we remain bearish on Hungary. We continue recommend selling HGB 22/A vs. receiving 10y HUF IRS. For investors who can mix local and hard currency exposure we recommend switching from HGB to Rephun. For leveraged investors we still see logic in paying 2y HUF IRS.
* Romania: EUR/RON tested the 4.35 level after the NBR sounded relatively dovish. Apart from the signalling effect we do not think that the NBR policy rate is important for FX. We believe the market may test the NBR’s tolerance, which will eventually lead to higher rates despite a dovish central bank. Due to attractive carry opportunities we continue to recommend paying 2y RON CCS rates with a target at around 5.75%. We entered the trade last week at 5.0%. Following the recent heavy sell-off in Romanian Eurobonds, we think the sovereign credit exposure is now more attractive than the local currency bond where the market cannot move wider in yield terms due to the MinFin cap and switch to shorter maturities. Hence, similar to our Hungarian recommendation, we see logic in switching from local currency to hard currency exposure.
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http://www.easyforexnews.net/wp-content/uploads/2011/09/EEMEA-Daily_30Sept11.pdf
Gyula Toth
UniCredit Research