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Weekly CZK Report: Regional underperformer

Weekly CZK Report: Regional underperformer

20.04.2012 17:25
Autor: Tomáš Vlk, Patria Finance

The koruna has weakened to the euro; the pair has extended its slightly positive trend from mid-March. The euro-dollar and the major equity markets are higher, but the CE currencies have not much reflected it. They might have been influenced by some potentially negative local issues. The koruna´s weekly performance is the weakest in the region as both the zloty and the forint roughly stagnated.

In the Czech Republic, the last release from the April set of macro data was the PPI. It was neutral for the market as the figures came out in line with the consensus. A more important issue is the politics. Only a few days after the government got over some coalition disputes, the smallest coalition party (VV) split up and raised the question of government stability again. Prime Minister Nečas insists that the government must have a “safe majority” in the 200-seat Lower Chamber. If this condition is not met, he wants to call an early election. Currently, the new VV faction does not have enough deputies to become a coalition member, so the early election is a risk. However, we still believe that the government will strive to continue, given the last survey suggesting severe coalition defeat in a potential election. The koruna does not look much nervous about politics, it seems that the currency would react only if the government really fell.

No Czech macro releases are scheduled for next week, so the politics may keep attention. Potentially, some central bankers´ comments may come before the May monetary meeting.

In Poland, the probability that the NBP will lift interest rates at its next meeting has decreased. The industrial production has disappointed and the central bank seems less convinced that the rates should go up. Hungary converges progressively to the EU requirements on the central bank law, but is still quite far from the emergency loan deal. These issues have had only minor influence on the respective currencies, but are still seen as risks.

The global markets have been supported by the higher IMF projections for global economic growth, the IMF firepower boost and by good corporate news. The last macro data were mixed: the good US retail sales and the German soft indicators were offset by the weak NY and Philly Fed indices. The Spanish bond auctions were a source of concerns during the week, but were finally successful. However, the concerns are not fully muted, because of the bad condition of the banking sector and the lack of further ECB support. Some auctions of Spanish and Italian bills and bonds are scheduled for next week.

The most important macro data will come from the US, where the 1Q GDP will be released. The economy is expected to slow, but still to show a good growth. The FOMC will decide on rates and release projections that will be important for market view on whether further stimulus may come. In Europe the most important data will be the set of April PMIs.

French presidential election takes place on Sunday; the first round will show distribution of power. The leading candidate Francois Hollande´s recent comments had some adverse effect on markets as he talked about higher corporate and bank taxes. The election result may influence the market sentiment early next week.

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