News
CZ: Positive – Czech Republic sells EUR2bn Eurbond at 160bp spread above mid swaps
RO: Positive – MinFin sold RON 2.5bn 2Y T-bonds: avg. yield 6.36%, bid/cover 1.1
RU: Mixed – Russia’s Ministry of Economic Development sees capital outflow in January 2012 at USD 17bn
Today’s Events
CR: Jan unemployment, Jan CPI / HU: Dec gross wages, HUF 50bn 3M T-bills auction / LV: Jan PPI / TK: Policy rate decision, revenue-indexed 2018 floating rate TURKGB auction / UA: UAH 3M and 12M T-bills and 2Y GB, USD-linked 3Y GBs, USD-denominated 1Y and 3Y GB auctions
EEMEA Markets
CBT meeting in focus today. In line with market consensus we expect the bank to leave its policy rate and the interest rate corridor unchanged. On the other hand we will keep a close eye on potential reference to two issues: 1. when the bank would consider narrowing back the interest rate corridor (5.0% to 12.5%), and/or 2. when the bank would consider starting FX buying auctions.
The TRY basket is almost back to July 2011 levels now (2.02-2.05 range) and the CBT is basing the CBT’s re-revised monetary policy plans on continuing foreign flows. Given Turkey’s 10.0% CAD/GDP ratio as of YE 2011 and the expected limited room for its correction this year down to ca. 8.0%-8.5%, allowing for further TRY appreciation seems to be a dangerous game and we expect the bank at some point to consider rebuilding its FX reserves via FX purchase auctions. TRY strategy: we have been positioned on the Turkish monetary tightening story via FX longs. Since mid December we had a short EUR/TRY position which provided us 4.3% profit till end of Jan when we switched into a short USD/TRY at 1.7950 levels. This cross has reached our take profit level at 1.74 (another 3% profit) and we now recommend taking profit on this position. Although we do not rule out further TRY appreciation in the near term we believe risk reward in entering TRY long positions at the current levels is not attractive enough. In the rates space we maintain our long recommendation in the 10y CPI linked bonds given break even inflation is too low in our view at the long end of the CPI linked curve (see our charts in our last weeks Curves and Crosses publication). For all our CEEMEA FI/FX strategy recommendations please see page 4-5 of this daily publication.
Click here to read the full report: EEMEA daily 210212
Gyula Toth
UniCredit Research