CEE Bond Markets Outlook
 |
12 Mai 2010 |
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RAIFFEISEN BANK S.A. |
Adresa
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+40-21-230.07.00
Website
www.raiffeisen.ro
Highlights
Poland – Volatility will most likely remain high as long as the debt problem of the peripheral European countries will not be addressed by the ECB. In spite of Poland´s sound economic fundamentals, we remain "neutral" on Polish bonds.
Hungary – Viktor Orbán, the next prime minister, revealed the structure of his new government (there will be only 8 ministries) and named the incoming ministers. While Fidesz politicians are clearly not satisfied with the central bank governor, the party's communication has become softer recently. Thus, it seems as if the tension between the new government and the central bank governor is easing.
Czech Republic – Despite a market environment dominated by the uncertainty about the Greek debt situation and weakening regional currencies, the Czech National Bank surprisingly cut its key 2-week repo rate by another 25bp to 0.75%, i.e. below the ECB's key refi rate, on its monetary policy board meeting yesterday. Today both the March data for industrial output (+10.2% yoy) and retail sales (+3.9% yoy) surprised on the upside.
Romania – President Basescu recently announced that the budget deficit adjustment would be entirely on the expenditure side. The government would take radical measures and will cut the expenditure with personnel in the public sector by 25% (which means lay-offs and cut in wages), and will reduce pensions and unemployment benefitsby 15%.
Croatia – We expect the negative outlook for the labour market to continue in H1 2010, retail trade results will likely be modest. The announced repeal of the so-called crisis tax in H2 2010 could have a positive psychological impact on consumers' behaviour. Therefore, the recovery of retail trade could begin in H2 2010 assuming that developments on the labour market become more favourable and the tourism season is successful.
Russia – In our opinion, the inflation outlook remains fairly benign. This must give the central bank additional incentive to cut interest rates. In April the bank lowered the key rate by 25bp to 8%, and we believe the bank could still deliver 50–75bp of rate cuts depending on the economic outlook. At the same time, the escalating crisis in Greece and lower oil prices knocked out our rouble recommendation.
Turkey – Turkish assets will mostly depend on market developments related to the sovereign debt crisis in the EU. Inflation worries and politics may play a role for the markets as well. Thus, if market turmoil subsides at some point in the future, we would expect bond yields to remain rather elevated, while the lira would also have better chances of rebounding. However, further increases in USD/TRY will likely be seen as well in a volatile market.
