News
CZ: Neutral – CNB left the repo rate unchanged at 0.75% (p2)
RO: Negative – MinFin sold RON 0.1bn 10Y ROMGB: yield 7.65% (p2)
SA: Negative – SARB leaves repo rate unchanged, discussed rate cut
SI: Negative – Moody’s cuts rating by one notch to Aa3 with negative outlook citing economic slowdown and banking sector (p2)
Today’s Events
HU: (23-26) Sept Economic Sentiment and Confidence / PL: Aug retail sales and Unemployment / TK: Aug Tourist arrivals / SA: 2022, 2028 and 2033 CPI linked bond auction
EEMEA Markets
Global backdrop: markets are opening on a somewhat firmer tone this morning after sharp losses in yesterday’s trading session. Although Asian equities closed about 2% lower S&P futures are about 1% up whilst EUR/USD gapped about 0.5% in the morning. Expect a lot of comments from the IMF/WB annual meeting which starts today.
Meanwhile EM local currency bond benchmark collapsed further (JPM-GBI USD unhedged index was down 1.8% yesterday): we highlighted yesterday that the YTD performance of the main benchmark for EM local currency dedicated bond funds, the JPM-GBI slipped into negative territory yesterday (mostly on the back of FX performance). In our today’s chart we show that the relative performance of the JPM-GBI vs. the UST shows very strong correlation with inflows into EM dedicated bond funds (see charts). This relationship suggests that in case the market fails to stabilize in the n-t or the USD rebounds EM funds might start seeing redemptions which could obviously lead to another leg of downturn in CEEMEA local currency funds. Non-resident bond positioning increased significantly in CEEMEA bond markets (see charts in our latest CEE quarterly). The weekly EPFR data which run till Wed showed an USD464mn outflow from EM local currency bond funds.
Czech Republic: the CNB left interest rates unchanged and the statement was reasonably dovish but the bank mentioned weakening CZK as a main factor preventing it becoming even more dovish. Against the above backdrop we continue to see the CZGB market as serving the regional safe heaven and recommend long positions both in FX and rates.
Russia: rates continued to spike sharply up as the CBR once again flooded the banking sector with excess liquidity while it has announced so far the biggest liquidity injection this morning (RUB250bn 1-day liquidity on offer). Our 2y RUB CCS payer position has already moved 60bp in our favour but we continue to see scope for higher rates as the banking faces further pressure. We hence continue to recommend paying 2y RUB CCS rates with a target of 7.50%.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/09/EEMEA-Daily_23Sept11.pdf
Gyula Toth
UniCredit Research