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28.02.2011 10:50 Monday
Czech Republic
The Czech koruna stayed calm in a narrow range around 24.50 EUR/CZK. The markets were pretty unmoved by the discussions around pension reform. The economic ministers agreed on Friday that the lower VAT rate should be raised to 20% as soon as possible, preferably on Oct. 1. The ministers also agreed that working individuals should be allowed to assign 1 percentage point of their social security tax directly to their parents’ pensions, without reducing their own future pension or their salary.
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Beside that, car company Hyundai announced that it plans to boost the production capacity in its Nošovice plant as demand is strong for its cars. Nevertheless the positive impact on the koruna should be offset by continued Middle East tensions. Also the NBP and ECB meeting may play against regional sentiment in the week ahead.
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Concerning the Czech bond market, it has recovered in recent days, which could be attributed to MinFin issuance plans. The Ministry confirmed last week that it is willing to tap the eurobond market again this year, which will naturally reduce the domestic bond supply.
Hungary
The Hungarian forint continued to recover on Friday and Monday morning and the pair appreciated to 272.00 from 273.50. It seems that market participants are waiting for the upcoming announcements about reforming the spending side of the budget with cautious optimism.
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The government said that it will announce details about cutting drub subsidy and disability pensions tomorrow and that total size of the package could amount to Ft600-700bn or more than 2% of GDP. Total size may mean effect not in 2011, but in 2013, when the budget needs most in order to keep the 3% of GDP deficit sustainable.
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Poland
On Friday, the Polish zloty saw a calm session and closed barely changed in sight of the 200 day moving average at 3,98 EUR/PLN. Hence, the Polish currency dipped by almost 2 percent in a week, mainly on comments made by central bank’s president Marek Belka.
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Undoubtedly, this week’s eye-catcher is the Monetary Policy Council’s meeting which is being held on Tuesday and Wednesday. Although we think that interest rates will be kept at current levels, a certain part of investors clearly bets on a rate hike. Apart from the reference rate announcement, a figure on GDP growth for Q4/2010 will be announced on Wednesday.
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We think that the zloty could be under modest pressure in the week ahead, especially if the global geopolitical tensions further increase. Moreover, the ECB comments might also weigh on the zloty. On the other hand, needless to say that prospective late hike would be positive from the zloty’s perspective.Â
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KBC
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***Economic Data***
- (IN) India Q4 GDP Y/Y: 8.2% v 8.6% prior
- (SA) South Africa Jan Private Sector Credit Y/Y: 5.0% v 5.9%e; M3 Money Supply Y/Y: 8.2% v 8.5%e
- (FI) Finland Dec Final Trade Balance: €42M v €35M prelim
- (GE) Germany Jan Import Price Index M/M: 1.5% v 1.1%e; Y/Y: 11.8% v 11.2%e
- (TH) Thailand Jan Current Account: $1.1B v $125Me;
- (FR) France Jan Producer Prices M/M: 0.9% v 0.9%e; Y/Y: 5.6% v 5.6%e
- (HU) Hungary Jan Unemployment Rate: 11.2% v 11.1%e
- (SP) Spain Feb Preliminary CPI EU Harmonized Y/Y: 3.4% v 3.2%e
- (SW) Sweden Jan PPI M/M: -1.7% v 0.3%e; Y/Y: 0.5% v 2.5%e
- (SW) Sweden Jan Retail Sales M/M: -0.1% v +0.7%; Y/Y: 2.8% v 3.8%e
- (SW) Sweden Jan Trade Balance (SEK): 9.0 B v 10.0Be
- (DE) Denmark Q4 Preliminary GDP Q/Q: -0.4% v +0.4%e; Y/Y:2.7 % v 3.1%e
- (HK) Hong Kong Jan Gov’t Monthly Budget Balance (HKD): 34.8B v 41.8B prior
- (AS) Austria Jan Consumer Price Index Y/Y: 2.4% v 2.3% prior
- (CZ) Czech Jan Money Supply Y/Y: 3.6% v 3.3% prior
- (HK) Hong Kong Jan M3 Money Supply Y/Y: 9.5% v 7.6% prior
- (NO) Norway Jan Credit Indicator Growth Y/Y: 6.1% v 6.4%e
- (SP) Spain Dec Current Account: -€3.1B v -€3.5B prior
- (EU) Euro Zone Jan CPI M/M: -0.7% v -0.6%e; Y/Y: 2.3% v 2.4%e; Core CPI Y/Y: 1.1% v 1.2%e
- (MA) Malaysia Jan M3 Money Supply: 8.8% v 7.0% prior
Fixed Income
- (GE) Germany sold €2.88B in 12-month BuBills; avg yield 1.0636% v 0.8683% prior; Bid-to-cover: 2.0x v 3.1x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations:
-China nudges down its economic growth projections from 8% to 7%
- India Q4 GDP below expectations at 8.2%
-Saudi Arabia’s state-run oil to step up oil production; Kuwait might also add oil
-Reports of protest spreading into Oman
-Enda Kenny, member of Fine Gael to be the next Irish Prime Minister
-US Government shutdown averted for two weeks?
Equities:
Eurostoxx50 at 2981, -13%, FTSE100 at 5968, -0.54%, CAC40 at 4070, -0.01%, DAX at 7187, +0.03%
- European bourses were trading choppily throughout the session, opening in negative territory and reeling between gains and losses. Libyan tension and oil prices are still on rise due to ongoing unrest in the country. The aftermath of the Egyptian revolution remains uncertain with the country’s exchange due to open on Tuesday. China lowered its GDP forecast and the Irish have a new prime minister as a result of a catharsis election but the two events hardly impacted the European shares. What weighed most was the disappointing quarter and year from British bank HSBC which dragged its European peers lower.
- HSBC [HSBA.UK] fell almost 5% after missing estimates due to lower investment banking revenues and higher costs. HSBC also lowered its ROE target to 12%-15% from 15-19%, noting uncertainties regarding the Basel III rules, risks to global growth due to increasing oil prices. The bank has an important exposure to the emerging Asia but company forecast that margins in the regions would continue to be pressured.
British retailer Associated British Food [ABF.UK] fell by more than 4% following its interim update. While results were in line with forecasts and adjusted profit expected to be ahead of last year’s, company forecast lower operating profit margins in the second half due to the increase in VAT in the UK and the impact on input costs arising from higher cotton prices which continue to rise.
- Irish carrier Aer Lingus [AERL.UK] reported a narrower loss but a disastrous outlook for 2011 forecasting significant challenges due rising fuel prices, increased airport charges and difficult domestic conditions. Company expects 2011 operating profit to be significantly below last year’s. Seemingly markets had lost hope before the management as shares were almost flat but in negative territory during the session.
- Bayer [BAYN.GE] reported a loss during its fourth quarter due to impairment charges and litigation costs related to YAZ/Yasmin. Revenues were higher than estimates and the forecast was in line with estimates. Company noted that sales and especially earnings continue to be weighed down by health system reforms that are impacting prices in many countries.
Speakers:
- Iran Opec gov commented that oil prices would return to prior levels once calm returned to Libya. He noted that the recent price rise was due to psychological factors rather than supply and demand
- Saudi Aramco’s Khalid Al Falih: have stepped in to compensate for an export shortfall stemming from the unrest in Libya
-Libya’s Oil Chief stated that its country’s production was down by more than half
- Sweden Central Bank (Riksbank) Minutes from Feb 15th policy meeting noted that members Ekholm and Svensson voted against rate hike of 25 Bps to 1.5% and sought unchanged rates to help lower unemployment. The central bank noted that the rates were raised in order to stabilization its inflation outlook. It expected a strong growth to continue in Sweden. It noted that the economic prospects in the US seem better; Europe continues to remain uncertain.
- Portugal Fin Min dos Santos commented that the Euro zone lacked coordination on budget targets and hoped that the EU would initiate clear measures in March to create crisis management solution. He noted that markets were ‘over reacting’ over Euro-Zone risk as Portugal’s deficit had risen similar to the EU average. Portugal has to show measures to ensure that it could reach its budget deficit target through 2013 and be prepared to do everything to achieve budget targets including additional austerity measures if necessary
- Qatar PM: Committed to invest €300M in Spanish banking sector
- Moody’s stated that the capital shortfall for Spanish banks could be €50B compared to the €20B seen by the Spanish Gov’t
- South Korea Fin Min commented that it was not perusing a weak currency policy
Currencies/Fixed income:
The market continued to favor USD short positions into month-end trading. Overall dealers noted that higher than expected inflationary data from Germany and France underscored concerns. EUR/USD was approaching the Feb 4th high of 1.3862. The GBP also got a lift on similar concerns after BoE Deputy Governor Bean commented late Friday that inflation was too high.
Geo-Political/ In the Papers:
- The London Telegraph reported a parallel between spiking oil prices and heightened probability of a US recession. It noted that since the early 1970s, every single time oil prices have spiked sharply (by 80% or more), the US has entered a recession. The article does, however, note that the oil spike may be different in that the oil price spike may be a precursor to a realignment of relations between the Middle East and the West.
- The results from Friday’s Irish General Election have propelled the opposition party Fine Gael to the forefront of Irish politics claiming a near majority in parliament. The most recent results reported by the Irish national media place Fine Gael in the lead with 70 seats, followed by their likely coalition partner Labour with 36 seats. Thus far 154 seats of the 166-seat lower house (Dail) have been filled.
***Looking Ahead***
- (BE) Belgium Debt Agency to sell €2.2-3.2B Indicated Range in 2014, 2021 and 2028 Bonds
- 6:00 (IS) Israel to Sell ILS550M in 2013 and 2016 Bonds
- 6:00 (IS) Israel to Sell ILS450M in Inflation-linked 2013 and 2041Bonds
- 6:00 (PD) Poland to sell up to PLN2.0B in 12-month T-bills
- 6:00 (IR) Ireland Jan Retail Sales Volume M/M: No est v -1.1% prior; Y/Y: No est v -3.1% prior
- 7:00 (CL) Chile Jan Industrial Production Y/Y: 4.5%e v 3.8% prior; Industrial Sales Y/Y: 4.7%e v 5.4% prior
- 7:00 (CL) Chile Jan Unemployment Rate: 7.1%e v 7.1% prior
- 7:00 (CL) Chile Jan Total Copper Production: No est v 497.6K tons
- 7:00 (SA) South Africa Jan Budget (ZAR): No est v 6.1B prior; Trade Balance: No est v 10.3B prior
- 8:30 (CA) Canada Q4 Current Account (BOP): No est v -$17.5B prior
- 8:30 (CA) Canada Dec Gross Domestic Product M/M: No est v 0.4% prior; Y/Y: No est v 3.0% prior; Quarterly GDP Annualized: 3.0%e v 1.0% prior
- 8:30 (US) Jan Personal Income: 0.4%e v 0.4% prior; Personal Spending: 0.4%e v 0.7% prior
- 8:30 (US) Jan PCE Core M/M: 0.1%e v 0.0% prior; Y/Y: 0.8%e v 0.7% prior; PCE Deflator Y/Y: 1.4%e v 1.2% prior
- 8:30 (US) Fed’s Dudley to speak on Economic Outlook in New York
- 8:45 (US) Fed’s Rosengren speaks on Panel in Boston
- 9:00 (FR) France Debt Agency (AFT) to sell €8.0B in 3-month, 6-month and 9-month Bills
- 9:30 (EU) ECB Calls for Bids in 7-Day Main Refinancing Tender
- 9:30 (EU) ECB Announces settlements in Gov;t Bond Purchase program
- 9:45 (US) Feb Chicago Purchasing Manager: 67.9e v 68.8 prior
- 10:00 (US) Feb NAPM-Milwaukee: No est v 57 prior
- 10:00 (US) Jan Pending Home Sales M/M: -2.5%e v +2.0% prior; Y/Y: No est v -3.6% prior
- 10:30 (US) Feb Dallas Fed Manufacturing Activity: 14.1e v 10.9 prior
- 11:00 (CO) Colombia Jan Urban Unemployment Rate: 14.3%e v 11.3% prior
- 11:30 (EU) EBRD’s Mirow Press Conference in Brussels
- 11:00 (US) Fed to purchase $5-7B in Notes/Bonds
- 11:30 (US) Treasury to s $32B in 3-Month and $30B in 6-month Bills
- 14:00 (AR) Argentina Jan Construction Activity M/M: No est v 1.1% prior; Y/Y: No est v 19.6% prior
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