News
BG: Mixed – Activity indicators off to a shaky start of 2Q11 (p2)
HU: Positive – April IndOut increases 6.9% yoy (p2)
Today’s Events
CZ: May Unemployment; 1Q C/A / CR: May PPI / HU: Exchg HUNGB auction / KZ: KZT15bn t-bill auction / PL: NBP MPC meeting / RO: 1Q GDP; April IP / RU: RUB20bn 2015 and RUB20bn 2017 OFZ auction; CPI YtD as of June, 6; May Car Sales / SL: 1Q GSP ; April Construction; April IP / TK: April IP
EEMEA Markets
Today the key focus will be on the NBP MPC rate decision where the consensus is expecting a 25bp rate hike – we see a higher probability of unchanged rates. Price action from yesterday suggests that the market is also positioned for a hike with PLN outperforming its regional peers. We, however, belong to the minority which thinks the NBP could well take a break after hiking by 75bp YTD vs. only 25bp by the ECB whilst concerns about the global growth outlook and backdrop are increasing. Separately, the economic adviser to the PM, Dariusz Filar (former MPC member and traditionally a hawk) said yesterday that the bank should not raise interest rates now but wait for the July CPI forecast update. As the FRA market is pricing only around a 50bp rate hike, we believe a no hike outcome will not necessarily have the ability to pull short end rates lower.
Meanwhile, heavy positioning in the less liquid markets continued to hurt investors. EUR/RON jumped above 4.16 whilst EUR/RSD moved close to the 100.00 level. We believe the weakness in the RON will provide a good entry level at Thursday’s 3y ROMGB auction, given 1) the fundamental backdrop has not changed in the last couple of weeks; 2) inflation is expected to drop significantly (by around 2.5pct) in July onwards as last year’s tax change falls out of the yoy index; 3) we believe the funding situation of the government looks solid for the rest of the year particularly if they successfully manage to sell the Eurobonds at the end of this week and 4) following the significant drop in yields at the short end t/bills (1y t/bill average yield at 6.61%) we believe longer maturities are becoming increasingly attractive. The next auction will be on 9 June when RON 500mn 3y ROMGB (October 2014) will be on offer, which offers roughly 55bp pick up versus the 1y paper.
Gyula Toth
UniCredit Research