On Monday, markets experienced yet another disappointment. Only a week after the unsuccessful introduction of bailout package for Spanish banks, the result of Greek election failed to boost the sentiment on a sustainable basis. Therefore, regional currencies got under pressure again.
The only exception was the Hungarian forint which drew support from the likely deal on the controversial central bank law. Prime Minister Orban said that the country was able to finance it needs on its own but he admitted that the price of funds might be too high. In our view, bets on the finalization of the deal (and establishment of a new stand-by loan) are probably the main reason for this year’s outperformance of the forint (in comparison with the koruna and the zloty) as well as for yesterday’s fell in government bond yields (-26 basis points).
Today, markets will look out for a Spanish T-bill auction. A high yield will only be considered as a sign that Spain is running out of options. If this is the case, regional assets would remain under pressure.
With respect to the koruna, we maintain our sell-off target at EUR/CZK 26.10. We believe that domestic factors (broadly expected cut in interest rates) should have rather small impact on trading.