CEE Market Insights
Global trade disputes are pulling local currencies onto a roller-coaster ride, with some of them seeing separate moves in their own right. Volatility could remain high while domestic macro news is somewhat off the table this week. The koruna was somewhat strong, as Governor Rusnok calmed down any expectations for easing. For the time being, we also keep our forecast of unchanged rates intact, which could help the koruna. The zloty already weakened a lot recently, also likely due to illiquidity last week. This has already started to reverse, and we think this appreciation could continue. The Hungarian forint could be relatively weak, however, as the central bank poured in a lot of extra liquidity with FX swaps last week.
As preads continued to tighten in Poland and in Hungary last week, more than just following the plummeting of global yields. While yield declines were aggressive recently, creating some room for a possible increase, we have still cut our yield forecasts for Hungary and the Czech Republic. Only a mild increase is expected in the absence of more reassuring global economic news. For Poland, we also perceive some risk to the downside, but we have just recently cut our yield outlook there, and thus, a forecast change seems a bit premature.
Shortly after last week’s 2Q19 GDP releases confirmed a more or less pronounced economic slowdown in the region, Poland will publish data on industry and retail sales performance in July. This is important to watch, as it may give some indication of how extensive the slowdown might be. Especially as to whether economic activity in June was particularly weak not only in Poland, but also across the whole region. In the Czech Republic, market sentiment indicators may also shed more light on whether June’s rather poor economic activity was a one-off or not. Labor market data is also due next week. In Slovakia and Croatia, the unemployment rate has been on a downward trend, while in Poland, the market expects employment to grow further and wage growth to sustain close to 7% y/y dynamics.