Erste Group: CEE Macro/Fixed Income Daily
December 13, 2012
SK Inflation: CPI inflation decelerated from September‘s 3.8% to October’s 3.4% y/y and thus finished lower than our forecast and the market consensus (both at 3.6% y/y). The slowdown was partly expected because of the base effect (as last November’s increase in railway fares was not repeated this year). Nonetheless, slower growth in food prices and a decrease in fuel prices were the main contributors to the lower than expected figures. Based on yesterday’s data, harmonized inflation could also drop in November to around 3.4-3.5% y/y. A further decline can be expected for the beginning of next year, when the base effect is likely to drive inflation under 3% (as energy prices are not going to rise in January like they did last year). Although decelerating inflation should normally lead to decreasing yields, this will likely not be the case in Slovakia, as Slovak government yields depend mainly on foreign investor demand. We expect 7-year government yields to rise to 2.8% by mid-2013, partly due to an expected re-pricing of Eurozone government bonds as well as a change in investor sentiment towards SK government bonds (which are currently traded at record-low levels).
PL Macro: Today, the set of data on the external balance will be released, as will the inflation figure. We expect the trade balance to post another surplus and work in favor of further current account narrowing. The inflation figure will not surprise and we expect the downward trend to translate into a figure of 3.0% y/y, in line with the market consensus. The bond-neutral data reflects the weak economy and confirms the absence of inflation pressure from the demand side. We do not expect the situation to improve soon; this will prevent the PLN from strengthening. We see the EURPLN losing its value to 4.16 over the next quarter.
CEE Fixed Income: During a FED conference yesterday, Mr Bernanke said that he will maintain the low interest rate environment until unemployment falls below 6.5% and FED’s inflation forecasts stays below 2.5%. The FED also expanded its third round of quantitative easing from USD 40 bn to USD 85 bn a month, adding a further commitment to purchase USD 45 bn of treasury instruments. Long end treasuries sold 6 bps in yield and EURUSD strengthened to 1.31. In CEE currencies EURRON continued to strengthen on back of large flows from overseas players hitting a low of 4.525 and currently at 4.520. Today the MoF will further re-tap a RON 400 mn 2Y Benchmark (DBN068, Jul 14) and RON 200 mn 5Y (DBN046, Jul 17). We expect that MoF will accept bids up to 6.5% for 2Y and 6.73% for 5Y. In Croatian bonds we began to witness better liquidity coming back to locally issued EUR linked bonds where 2014 and 2022 remain most liquid in their market. Croatian EUR bonds continued to trade tighter yesterday with the curve tighter in yield between 5 to 10 bps.