News
BG: Neutral – GED down 0.4% mom in July, MinFin sells EUR 35mn of 5Y bonds (p2)
KZ: Mixed – M3 shrinks 2.3% mom in August (-2.1% momsa) (p2)
Today’s Events
HU: August Unemployment / SRB: RSD 10bn 53w t-bill auction / RU: 2Q C/A, Weekly CPI / SK: 2Q C/A, August PPI, September Consumer and Industrial confidence
EEMEA Markets
Global backdrop: US equities managed to maintain about 1% gain yesterday despite the afternoon sell-off. Asian markets closed a flat session O/N whilst EUR/USD was consolidating around the 1.35 level. KRW also closed roughly flat vs. the USD. Against this backdrop, we believe the market correction might take a breather in CEEMEA markets and we are looking for a flattish open.
Poland: FinMin Rostowksi announced that the new debt strategy assumes 4.35 EUR/PLN at the end of 2011 and 4.0 EUR/PLN at the end of 2012. The numbers should not come as surprise but nevertheless should serve as a fresh reminder about the policy direction. Given the circa 12% assumed appreciation from today’s spot prices the outlook for rates is fairly dovish. Meanwhile the key regional cross (PLN/HUF) did not reflect this at all and is still trading at multi month lows at around 65.30. We continue to see logic in adding long PLN/HUF positions at current levels with a potential target at 70.00.
Russia: Rates consolidates yesterday across the board with CCS almost fully reversing their previous day spike. We recommended in our yesterday’s daily to partially take profit on our 2y RUB CCS payer above our initial 7.5% target. Meanwhile the auction of the 2015 OFZ paper has been cancelled as yields soared to around 8.50% level. From here we will monitor the CBR liquidity operations, specifically if the want to offer longer than 1day repo. For the time being we would stay payers with half of the original trade size.
Hungary: HGBs rallied about 20-25bp across the curve whilst local currency ASW has tightened by about 15bp. We believe local currency bonds are now extremely expensive versus hard currency bonds. For instance the Rephun USD 21 is currently trading around 475bp ASW whilst the local currency HGB 22/A is trading at around 60bp ASW. With the basis curve at negative 210bp the hard currency bond is about 205bp cheaper than the local currency bond. We hence recommend reducing HGB exposure further in the current rally. We continue recommend switching from local currency to hard currency debt. Alternatively we see good value in selling HGB 22/A vs. receiving 10y HUF IRS.
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Gyula Toth
UniCredit Research