BG: Neutral – 1Q GDP grows 3.4% yoy (p2)
CZ: Neutral – Wages expand 2.1% yoy in 1Q; Govt auctions CZGB 2014 CZK5.7bn: bid/cover ratio – 2.21, yield – 3.848% (p2)
RO: Positive – 1Q GDP grows 1.7% yoy / Negative – April IndOut falls 0.2% SA mom (p2)
SK: Positive – 1Q GDP grows 3.5% yoy (p2)
Today’s Events
BG: April Trade Balance / CZ: 1Q GDP, May CPI, CZK 8bn 364d t-bill auction / HU: 1Q GDP, April Trade balance (Prel), HUF 50bn 12M t-bill auction / KZ: April Wages / LV: 1Q GDP, April Trade balance / PL: PLN 3bn 2013 POLGB auction / RO: April Trade balance, RON 500mn 2014 ROMGB auction / SRB: Policy rate decision, RSD 2bn 3M t-bill auction / RU: Int Reserves as of 3 June, May Budget, April Trade balance / SK: April Trade balance / SL: April Trade balance
EEMEA Markets
Following the Polish Central Bank’s rate hike on Wednesday, NBP Governor Belka signaled a pause from here. The NBP attributed the hike to above target inflation and higher wage growth, as well as mentioning strong GDP data for 1Q. That said, the NBP also acknowledged downside risks ahead given more recent data showing a slowdown in global economic activity. Following the meeting, Belka indicated that the NBP would take time from here to assess the effectiveness of its rate hikes YTD. Given that the NBP has hiked rates by 100bp YTD while the ECB has hiked by only 25bp and the Czech Central Bank (CNB) has yet to move its policy rate, it seems likely to us that the NBP has now pushed through the vast majority of tightening for this year. It would take a decent upside surprise on inflation or wages to see the NBP move again over the next couple of months.
More broadly over the coming months we see scope for only a limited tightening of monetary policy in the region. Today we monitor the ECB’s statement, while in Serbia we expect the NBS to leave the policy rate on hold. Any further rate hikes in Serbia, if they materialize, are likely to be very modest. We continue to expect the CNB to hike in 3Q from a current policy rate of 0.75%, but any hikes will be very gradual in nature, in particular given the recent PMI data. We do not forecast hikes in Hungary or Romania this year.
In terms of market impact the PLN swap curve dropped 8/10bp following the statement with some flattening bias. With 1y1y forward only about 30bp above the 1y and the shape of the curve looking pretty flat beyond the short end too (5y5y minus 1y1y is only at 10bp) we actually do not see much room for the IRS curve to move much lower from the current levels. Given wide ASW on the mid to long end of the cash curve, bonds could extend their rally however. With the market increasingly focusing on the global slowdown trades in the rates space we believe the CZGB curve has more risk premia it.
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UniCredit Research
UniCredit Corporate and Investment Banking Unicredit Bank AG