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Weekly CZK Report: Back at 25.0 despite recession

Weekly CZK Report: Back at 25.0 despite recession

20.2.2012 12:11
Autor: Tomáš Vlk, Patria Finance

The koruna has returned to the 25.00 area and erased most of the losses that came in last Friday. Overall, the euro-koruna rate has been stabilizing in February after the January appreciation. This is similar to other currencies in the CE region. The daily trading is mostly driven by the global markets, although the region shows somewhat better weekly performance than the euro-dollar and equities.

The decision about the second bailout package for Greece was put off once again. Greeks approved most of the required measures already on Monday but the Eurozone considered it unsatisfactory and canceled the Wednesday Eurogroup meeting. Another one will be held on Monday, February 20. Meanwhile, Greece has delivered the rest of budget measures and raised its chance to get the aid. However, during the week, news on this topic was mixed and triggered several swings on financial markets. Moreover, the Eurozone members seem to become more annoyed and some say that the bailout might be postponed, cut in two, or dedicated for debt redemption only. It means that there is still a considerable risk of negative surprise, although the approval of the bailout package seems to be close.

Despite the continuing uncertainty about Greece, debt auctions in the Eurozone were successful and led to lower yields. However, in some cases the demand has somewhat weakened. Positive news came from China as its representatives repeated that the country is ready to support Europe through investment in the rescue funds.

The ECB confirmed that there is a way how the bank could indirectly support Greece: profits from the bonds would go to the member governments and then, possibly, could be used as financial aid. The ECB also decided that soon it will start to exchange its Greek bonds for new bonds with the same structure and nominal value. This action would protect the ECB from restructuring and the consecutive losses that private investors will face; it is thus no support for Greece.

Macro data released during the week in the major economies were supportive for market sentiment. The GDP figures from the key Eurozone members beat estimates and so did the US manufacturing indices. Moreover, Japan has announced expansion of the central bank´s asset purchase program. On the other hand, markets were negatively influenced by rating actions. Moody´s has cut its ratings of six EU members and worsened outlook to negative for other three including France and the UK. The rating agency has also warned that it may downgrade 17 global and 114 European financial institutions.

Czech data had limited impact on the koruna. The preliminary GDP figures showed that the economy contracted by 0.3 pct in the 4Q. As the GDP decreased slightly also in the previous quarter, the economy has technically entered recession. The market had expected the GDP to stagnate; the 4Q reading was, therefore, a negative surprise, but influence on the koruna was modest and the currency has recovered quickly. The January inflation reading has not changed our view on interest rates, we still expect them to remain stable for an extended period of time. The consumer prices rose faster than expected in January, but mostly due to a VAT hike and a rise in regulated prices.

Other countries in central Europe showed better economic performance in the 4Q than the Czech Republic. Interesting news came from Hungary: its central bank announced a mortgage bond purchase plan and a two-year collateralized credit facility to boost lending by the commercial banks. The forint´s immediate reaction was positive, but we doubt this measure will boost the currency further. The debate with the EU over the new loan will be more important for the forint.

No important Czech data is scheduled for next week, the PPI release should be neutral for trading. Sentiment on the global markets will mostly depend on whether Greece is able to finally reach the second bailout package. Besides that, some data like the European PMIs, the German Ifo index and the US consumer confidence may also have some short-term impact.


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