Bouncy May retail sales (+8.4%) confirmed the improving state of the Czech economy. The structural changes are wanting, still. The Cabinet will postpone privatization of the dominant telecom firm, Cesky Telecom, today. Similarly, yet another deadline for a decision on power sector privatization passed with no avail. Ministry of Industry and Trade, headed by 70-years-old minister, prefers a "combined sale" whereby one single investor would buy stakes in the Czech dominant energy producer AND in all distribution companies. Back to socialism, then?
The Czech koruna fell again on Tuesday to 35.70 CZK/EUR from 35.55 CZK/EUR. It lost similarly against the dollar from 38.00 to 38.15 CZK/USD. The koruna was influenced by yesterday's releases of inflation numbers both in the eurozone and in the US. Both numbers were higher than expected and especially European inflation was surprisingly high, growing to 2.4% in harmonized inflation index. US inflation rose to 3.7% (0.6% m-to-m). A reaction from the ECB remains an option, but markets shed some euros, so the hapless European currency fell to 0.925 USD/EUR.
Czech bonds were falling again on Tuesday, after disappointing retail sales figures released that day. The sales rose +8.4%, which was far above expected average about 4% - however, the fall has not been immediate but continued throughout the whole day. Most falling are the longest term papers again, MoF 6.40/10, which will be reopened in auction in August, seems to be now the target of short selling. Now the market will have a 1-week period without new economic data releases, the first one is foreign trade on July 25, however, we are not bullish anyway.
Current benchamrk prices: MoF 6.75/05 99.50-80 (-15 bps), MoF 6.30/07 96.15-45 (-10 bps), MoF 6.40/10 96.00-30 (-45 bps).
(Ondrej Schneider and Dalimil Vyskovsky)