CEE Market Insights
While the HUF fell the most in the region last week, we think that the Hungarian central bank will not be worried much as long as long-term yields do not increase substantially, which does not seem to be the case yet. The dovishness of the central bank could mean that the forint could continue to be subject to higher volatility. In Croatia, the kuna seems somewhat weak, while usual seasonal flows at this time of the year would suggest otherwise. Still, any appreciation pressure on the kuna could continue to be tamed by the central bank, in line with comments from central banker Vujcic.
L ower Bund yields helped CEE yields to go mostly lower last week. Czech and Hungarian yield spreads even declined, likely due to worsening trade war prospects globally. Polish yields showed some uptick during the week, however, after the relatively strong GDP data release. Even more importantly, the governor signaled that he sees unchanged rates until the end of his term – which is only coming in three years. In Romania, tight liquidity control is deemed very effective by the governor. This reaffirms our view that no increase in the policy rate will come this year.
Week ahead: This week, the release calendar is relatively empty. Except for PPI data, there will be just April’s industrial output, retail sales and wage growth for Poland. This data will be very important, as it will provide us the first opportunity to get now-cast output for GDP in 2Q19 based on April numbers. At this moment, we expect the Polish economy to sustain strong growth 2Q. Last week’s better than expected GDP flash estimates will lead to some upward revision of the full-year forecast. We have put our 3.1% forecast for the Romanian economy under review (a new forecast will be published within a week), while we see some upward risks for Hungary’s forecast, which is likely to be updated with the detailed GDP data (due in June). Over the weekend, European elections take place. They could provide some valuable insights on new trends in domestic political preferences. However, due to low turnouts, these preferences (level-wise) should not be taken as fully representative.