News
HR: Positive – Central bank raises mandatory reserve requirement from 13% to 14%. (p2)
HU: Mixed – NBH MPC keeps rates unchanged / sees about 20% participation rate in FX mortgage repayment scheme / says ready provide FX from reserves (p1)
TK: Mixed – CBT MPC leaves rate unchanged / sells USD350mn at FX auction / Local currency rating upgraded to investment grade (p1)
RU: FX negative – CBR floods market with liquidity with providing URB180bn RUB via 1day repo auctions (p1)
Today’s Events
CZ: CZK 8bn 2014 CZGB auction / HU: July Retail trade / KZ: KZT 10bn 2024 GB auction / LV: August IP, PPI / RU: RUB 10bn 2017 OFZ auction
EEMEA Markets
* Global backdrop: the external environment has improved somewhat with equity markets closing strongly up in Europe and were flat in the US and Asia. EUR/USD is flirting with 1.37 whilst EUR/CHF is up O/N following speculations that the SNB might move the peg higher. Meanwhile Italian CDS was firmly above 500bp whilst the Snrfin spread also widened. Today the key focus will be on the FOMC meeting where the consensus expects a maturity extension of its portfolio.
* Hungary: the NBH MPC left interest rates unchanged but more importantly in the press conference indicated that they expect 20% participation rate at the FX mortgage scheme and is ready to provide FX for the banks from reserves. This represents about EUR3.6bn. We believe the announcement might be a game changer for EUR/HUF as 1) the NBH would not have had announced such a concrete figure for participation rate without a firm view, 2) it will take out the potential pressure form the FX market. We also think that the bank might consider other tools in case the banks enter into a too strong competition in providing HUF loans in the coming 3M period (such as a hike in reserve requirement). In our view the bank will likely keep monetary conditions tight in the forthcoming 3/5M repayment period in order to safeguard financial stability. Implication for rates is higher in the n-t and might be lower in the post 5M (December + 60 days) period. The trade from here could be to pay short end FRAs vs. longer dated FRA receiver. We would also consider switching our existing 2y HUF IRS payer to shorter dated HUF CCS payer (most probably 3/6M HUF CCS payer) as the basis will also move higher in the period when the NBH is providing FX liquidity.
* Russia: unlike in 2008 the CBR was quick in flooding the banking sector with liquidity. At yesterdays repo auction the bank provided RUB180bn liquidity, the biggest amount since 2009. We think this might suggest that the game in changing for the RUB. As opposed to 2008/9 when the CBR was trying to defend the RUB via liquidity squeeze this time around it does not seem to stand in the way. We think the move is clearly a bearish signal for the RUB whilst for the rate markets it yet to see how the excess liquidity is transferred. Today the MinFin will auction RUB10bn OFZ. Given still bearish sentiment in the market we would not rule out a cancelled auction.
* Turkey: the upgrade of the local currency debt and the relatively dovish CBT meeting saw local rates rallying about 30/40bp. Following the diverging local and hard currency debt rating, we also expect that hard currency debt could remain cheap vs. local currency debt for a longer period. Separately the bank has offered USD350mn at the FX auction (the highest amount since it started the auctions). We remain positive on the TRY and recommend O/W in hard and local currency debt markets.
Gyula Toth
UniCredit Research