News
CZ: Neutral – The Finance Ministry presented an updated macroeconomic forecast, expecting this year’s GDP at +0.2%. (p2)
KZ: Dovish – Jan CPI slows to 5.9%YoY from 7.4%YoY on the back of base effect (p2)
TK: Dovish – CBT takes a dovish stance on inflation for the sake of growth (p3)
RO: Positive – MinFin sold USD 1.5bn in 10Y benchmark GBs: avg. yield 6.875% (p3)
RU: Positive – Preliminary estimates by the Federal Statistical Service show Russia’s real GDP in 2011 grew by 4.3% yoy (p3)
Today’s Events
BG: Jan international reserves, Dec budget balance / CZ: Jan PMI, CZK 8bn 2015 GB auction / HU: Jan PMI, Nov trade balance (final) / KZ: Jan CPI, Jan PPI / PL: Jan PMI, PLN 1-3bn 2021 GB auction / RO: Jan international reserves / RU: Jan PMI, RUB 35bn 2021 OFZ auction, (01-10) CBR rates decision / TK: Jan PMI
EEMEA Markets
We enter a tactical short EUR/RON at current levels and set initial target at 4.25. Stop loss at 4.40. We believe following the successful Eurobond issuance the risk reward on short EUR/RON positions improved significantly and the weak FX do not seem to be in line with the outperforming credit market. We believe t-bill yields are attractive versus FX implied yields offer good entry points to the local market. Yesterday the government managed to sell USD1.5bn Eurobond at yield of 6.875% which did not include any new issue premium compared to peers or the existing Romanian EUR denominated bonds. The issue was a big success as according to the MinFin it attracted bids close to USD7.0bn. We believe the positive investor’s sentiment regarding Romanian credit is due to its scarcity value (this was the first USD paper from Romania and hence will probably go in the benchmarks) and positive underlying credit story supported by a strong IMF anchor. We originally expected about USD2.0bn Eurobond issuance for the whole year so the authorities have already covered 75% of their funding needs according to our numbers.
We note that RON has appreciated somewhat in the aftermath of the last two Eurobond issuances as the market is focusing on how much money needs to go through the market. As the forward implied yields are significantly below onshore t-bill yields (3M FX implied yield is at 2.80% vs. circa 5.40% on the t-bills) we think the best strategy is to play this story via the spot market. Investors selling EUR/RON and buying t-bills earn much better carry that selling EUR/RON forwards. The MinFin will auction Oct 2014 ROMGB tomorrow (indicative amount RON750mn) and 1y t-bills next Monday (indicative amount RON1.5bn).
Click here to read the full report: EEMEA daily 010212
Gyula Toth
UniCredit Research