Friday, December 17, 2010

Central European Update : Czech PPI inflation at 2.7% above market expectations

There will be no Central European Daily from the 20th of December until the 3rd of January 2011.


Currencies: MPC member Bratkowski expects 2011 Polish growth will exceed 4%
Fixed Income: CzechPPI inflation at 2.7% above market expectations

Czech Republic

Central European currencies saw a calm session yesterday. The Czech koruna was hovering around 25.16 EUR/CZK all day, although November's PPI inflation ended a little bit higher than expected. Prices rose by 2.7% Y/Y compared to previous year (vs. expected 2.5% Y/Y) and on month-on-month basis grew by 0.5%, 0.3 percentage point faster than expected. Regarding the bond market, the spread between the 10Y Czech government bond and Bund further narrowed and reached levels seen in April 2010.
Today, we expect that nervousness stemming from the EU summit could weigh on the Czech currency.

The Hungarian forint strengthened a bit further yesterday and was able to close below the key EUR/HUF level of 275.00 at 274.80. The forint has appreciated slightly more than its peers in recent days probably due to investors’ short covering after jitters about the government’s policies are fading.
The bond market had a quiet day and yields stayed generally unchanged. AKK will hold the regular biweekly auction of 3-, 5- and 10-year bonds, which could attract investor’s attention as the sentiment has been improving, while yields are close to this year’s high. Foreign investor’s demand for bonds looks to be strong despite the ongoing debate about fiscal policy and their holdings reached a new record at Ft2629bn yesterday.
The EUR/PLN currency pair stayed slightly below 4 EUR/PLN yesterday and is thus still close to 200 days moving average seen at 3.987 EUR/PLN.
Monetary Policy Council's member Andrzej Bratkowski said in the morning that he expected economic growth in 2011 would exceed 4%. He also said that, despite solid growth, demand pressure on inflation had not occured yet and added that the start of the monetary policy tightening cycle could not be ruled out although it was not forejudged. Today, labour market statistics (gross wages and employment) for November will be released.
We expect that the zloty's trading should stay relatively calm today, keenly awaiting afternoon's release of important statistics, which could shed light on the further course of Polish monetary policy.

Bonds 2Ychange
Czech Rep.1.840.04
Hungary 3Y7.78-0.02
Bonds 10Ychange
Czech Rep.3.920

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