In contrast to other European countries the Czech Republic does not have a problem with the assessment of major rating agencies. This was confirmed by yesterday’s comments of rating agency Fitch, which affirmed the Czech Republic A+ rating with a positive outlook. The agency nevertheless warned against risks of political tensions, which might jeopardize budget cuts and structural reforms. While we think that political tension will prevail, we doubt that they are currently a threat to ongoing fiscal consolidation, which evidently priced in the Czech bonds, which offer only very low credit risk premium.
The Hungarian forint weakened yesterday keeping its correlation with the Swiss franc in place. The CHF was well-supported by continued uncertainty around the debate on the increase of the debt ceiling in the US, but also in the euro zone Italian and Spanish bonds came again under pressure. Nevertheless, the forint could reverse some of its losses and ended the session slightly above EUR/HUF 269, up from an opening level around EUR/HUF 268.50.
This morning, the Hungarian forint reversed yesterday’s losses and EUR/HUF is even trading around the 267.50 level, close to the 100-day moving average. The retail sales data surprised on the upside of expectations rising by 0.7% Y/Y in May, while the consensus was looking for a decline by 0.4% Y/Y.
In the afternoon, the focus will turn to the Hungarian central bank meeting. The MNB is forecasted to keep rates unchanged at 6.00%. The latest inflation data showed a significant decline in inflation falling from 3.9% Y/Y to 3.5% Y/Y. Nevertheless, we believe that the Hungarian central bank has no reasons to change policy. Since nobody on the market expects that the MNB changes its monetary policy, the forint and HUF bonds should digest the outcome of the meeting quite easy.
After a successful end of the previous week, the Polish zloty was trading back above 4 EUR/PLN level on Monday. Again, markets focused mainly on the failure of US politicians to reach an agreement on the US budget and on raising the US debt ceiling. Increased risk aversion in turn supported safe-haven assets and weighed on the Polish zloty.
Regarding yesterday’s news, Deputy Finance Minister Radziwill confirmed that the Ministry would not issue treasury bills this year.
Nevertheless, despite this heightened risk aversion, the zloty manages to erase yesterday’s losses. Hence, the EUR/PLN cross rate dips below 4 EUR/PLN level today in early trading.