News
HU: Neutral – 3m t-bill auctions sees 2.65 bid/cover on limited supply
RU: Positive – Sept CPI falls to 7.2%yoy from 8.2%yoy
Today’s Events
CZ: CZK 7bn 2021 GB auction / HU: NBH minutes / KZ: KZT 15bn 2013GB auction / PL: NBP rate decision / RO: August Wages / RU: September Services PMI / SK: August Retail sales
EEMEA Markets
* Global backdrop: news about a potential coordinated approach toward EU bank recapitalization saw a significant rally in US equity markets (S&P was up more than 4% in the last hour of trading). Later Moody’s decision to downgrade Italy by three notches even if it brought only in line with S&P clearly blurred the positive momentum. Asian equities failed to carry on and Nikkei closed 0.7% lower whilst KRW was rather flat. EUR/USD is lower this morning but still about 1% above yest bottom. Ongoing rumours about a potential EUR/CHF repeg are also fuelling the consolidation of the EUR. We think the sharp US equity rally clearly demonstrates how short the market is in risky assets and hence this short squeeze might have some further legs. We are looking for a firm open in CEEMEA markets today.
* Poland: the NBP will announce rate decision today. We and consensus expect unchanged rates but the tone might reasonably dovish on the back of slowing growth. The FRA market is pricing no rate change in Q4 2011 and only about 25bp cut over the next 12M. In our recent CEE quarterly we pencilled in 75bp rate cut till end of 2012 and hence we see some value in receiving short rates.
* Turkey: the TRY basket has reached fresh highs above 2.20. As the CBT interventions do not seem to work with the basket down 4.1% since they restarted the FX auctions we do not rule out a potentially significant cut in FX reserve requirement. If this does not work either than we believe the CBT still has the option to limit the liquidity it provides through the 1weke repo auctions. This in turn could push short end rates significantly up. We still prefer TRY in RV trades vs. a 50/50 basket of HUF and PLN.
* Czech Republic: CZK7bn CZGB 3.85/2021 paper will be auctioned today. With spread vs. Bunds around 140bp at the long end part of the curve and ASW is about 100bp vs. CZK IRS we believe Czech local currency papers are attractive in terms of yield pick up. Accordingly we expect strong auction today and continue recommend long duration in CZGB.
* Hungary: Moody’s put 7 Hungarian banks on review for potential downgrade. Yesterday, we recommended to take profit on some of our bearish Hungary positions (long EUR/HUF and pay 2y HUF IRS). We remain negative on Hungarian assets but prefer to play it in RV trades.
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Gyula Toth
UniCredit Research