Wednesday, April 20, 2016

Forex - Emerging Europe Closing Summary and Highlights 20 Apr

POLAND

The zloty strengthened slightly against the euro on Wednesday with the EUR/PLN dipping as low as 4.2825 while government bond yields decreased by up to 4bps across the curve. This was despite a decrease in risk appetite earlier in the session following a fall in oil prices triggered by Kuwaiti oil workers ending their 3-day strike,

Domestically, NBP Management Board member Glapinski (who has been rumoured to be the favoured candidate for the next NBP Governor when Belka's term comes to an end in June) said the central bank would maintain its conservative monetary policy as Poland has stable GDP growth and a stable currency. However, he warned that although the banking sector was stable at the moment, there were a number of challenges ahead. Glapinski also said the central bank would monitor the impact of the tax on bank assets and "pledged" that the CHF mortgage proposal would not be a "disaster", adding that it was the NBP's job to ensure the stability of the banking sector and the zloty. According to him, "everyone involved in drafting CHF loan plans has stability of the industry in mind". Finally, he warned that cooperative banks were particularly concerned about the impact of low interest rates.

Elsewhere, in its EU convergence plan the Finance Ministry said that it expects GDP growth of 3.9% y/y, 4.0% y/y and 4.1% y/y in 2017, 2018 and 2019, respectively. It also revised its forecast for the 2016 budget deficit to 2.6% of GDP from its previous estimate of 2.8% of GDP, rising to 2.9% of GDP in 2017 before declining to 2.0% of GDP in 2018 and 1.3% in 2019. Much of this will apparently be financed by a tightening of the tax collection system which is expected to bring in PLN 6.5-16.7bn in additional tax revenues in 2017, rising to PLN 27bn in 2018 and PLN 33.4bn in 2019.

CZECH REPUBLIC

While the koruna was generally stable against the euro on Wednesday with the EUR/CZK trading in the 27.01-27.033 range, it depreciated slightly against the US dollar following the stronger-than-expected US March existing home sales data with the USD/CZK climbing above the 23.80 level.

HUNGARY

The forint strengthened slightly against the euro on Wednesday with the EUR/HUF falling as low as 308.81, helped by strong domestic data with the average gross wage growth ticking up to 5.9% y/y in February from 5.8% y/y in January. Meanwhile, government bond yields were generally stable. This was despite a dip in risk appetite earlier in the session triggered by a fall in oil prices after Kuwaiti oil workers ended their 3-day strike.

RUSSIA

While most Russian government bond yields decreased by 2-9bps on Wednesday (source: Reuters), the ruble weakened a bit on lower oil prices in the aftermath of the end of the Kuwaiti labour strike with the USD/RUB temporarily rising to 66.932. This was despite FX sales by exporters in the ongoing tax payment period as well as the relatively hawkish comments by CBR Chairwoman Nabiullina.

Nabiullina said that she saw a risk of CPI inflation staying in the 6-7% y/y range for a long period of time, adding that this rate of inflation would be "very unacceptable" as it would not help investment while the 4% y/y inflation rate was "optimal" and "realistic". In addition, she called for the "conservative approach" to this year's budget while First Deputy Finance Minister Nesterenko said that she saw the 2016 budget deficit at 3.4% of GDP, above the government's target of 3.0% of GDP.

SOUTH AFRICA

The rand weakened slightly against the dollar on Wednesday with the USD/ZAR climbing as high as 14.3688 while government bond yields rose by up to 6bps across the curve amidst a decline in risk appetite following a fall in oil prices prompted by Kuwaiti oil workers ending their 3-day strike. Data wise, CPI inflation decelerated to 0.8% m/m, 6.3% y/y in March from 1.4% m/m, 7.0% y/y in February, compared to the consensus forecast of 0.8% m/m, 6.4% y/y. More specifically, the CPI breakdown revealed that unprocessed food prices rose by 12.5% y/y in March, reflecting the impact of the prolonged drought and higher import costs as a result of the weaker rand.

TURKEY

Turkish assets continued to strengthen on Wednesday despite less than constructive sentiment in global markets amid the fall in oil prices following the end of the Kuwaiti labour strike. In particular, the lira reversed morning's losses in the afternoon with the USD/TRY breaking the 2.816 support level and briefly falling to 2.8079 while government bond yields decreased by 5-16bps across the curve (source: Reuters) following the central bank's rate-setting meeting.

The CBT decided to leave its benchmark repo rate as well as the overnight borrowing rate unchanged at 7.50% and 7.25%, respectively, and to lower its overnight lending rate by 50bps to 10.00% in the aftermath of the 25bps cut in March, in line with the consensus forecast but not as aggressively as some investors feared. In addition, the central bank reiterated that the "improvement in the underlying core inflation trend remained limited, necessitating the maintenance of a tight liquidity stance". Despite the cut, Economy Minister Elitas said that it was "not thrilling".


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