News
KZ: Positive – Fitch Ratings has upgraded Kazakhstan’s long-term foreign and local currency issuer default ratings (p2)
LN: Neutral – IMF publishes the Staff Report for Article IV Consultation (p2)
PL: Negative – Oct IP growth decelerates to 6.5% yoy / Oct PPI accelerates to 8.5% yoy (p2)
RO: Negative – Govt. sells 9M T-Bills worth RON 502mn, half of the planned amount: avg. yield comes in at 6.72% / Positive – NBR offers RON 6.2bn through a 1w repo (p2)
Today’s Events
CR: Oct Unemployment / HU: HUF 40bn 3M T-Bill auction / LT: Oct IP / LV: Oct PPI / PL: Oct Core Inflation / SRB: RSD 6.7bn 2014 GB auction / RU: 3Q FDI / TK: 2018 floating GB auction / UA: UAH 3M and 9M T-Bill, UAH 2Y, USD-linked 3Y, 5Y and 10Y GB auctions
EEMEA Markets
Global backdrop: poor equity performance set a bearish tone for CEEMEA markets yesterday with all FX weakening about 1% whilst yields on local currency bonds widened. SovxCE widened about 15bp. Today the main focus will be on the US GDP data and the publication of the FOMC Minutes. Meanwhile real economic data out of the CEEMEA region continue to show resilience. Yesterday we learned that Poland posted a decline of 0.2% MoM SA in industrial production in October. This is a modest correction given a 2.4% MoM gain in August and a 1.9% MoM gain in September. Measuring gains in IP on a 3m/3m SA and annualised basis, October saw Poland’s gain’s accelerate to 13.4%.
Local currency bond auctions: 1) Hungary will auction 3m tbills, HUF40bn will be on offer. The last auction saw 2.8 bid/cover and 6.71% yield. We expect somewhat better demand and lower yield on the back of the start of IMF negotiations. 2) South Africa will auction R204 papers, ZAR1bn on offer. The last auction saw a stellar 4.1 bid/cover and 7.75% yield. The papers are currently trading at 7.80%. 3) Turkey will auction 2018 CPI linked papers.
Hard currency: yesterday we published two potential switch ideas in our Credit Explorer publication. #1 For Hungary, we conclude that an IMF agreement is not imminent and we would hence not jump on sovereign credit with outright purchases. On the other hand, we recommend switching from Rephun USD 2021 to Rephun EUR 2016 for a pick-up of about +50bp. Recently, EUR paper significantly underperformed USD paper. The current zspread difference between the Rephun EUR 2016 and Rephun USD 2021 is ca. +50bp in favor of the EUR paper..#2 Regarding Poland, we think the announcements from PM Tusk are positive, but in light of the volatile global backdrop, we also recommend switching vs. outright purchasing. We see value in switching from Poland USD 2022 into Poland USD 2019. we see the Poland USD 2019 and Poland USD 2021 paper as relatively cheap on the USD curve. Both are trading ca. 10bp tighter than the longer Poland USD 2022 paper at ca. 320bp z-spread (vs. 330bp on the Poland USD 2022).
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/11/EEMEA-daily-221111_MS.pdf
Gyula Toth
UniCredit Research