Investment Research General Market Conditions
25 October 2012
EMEA Weekly CNB to cut to zero and more to come A number of monetary policy setting meetings are due in the EMEA region next week. Probably one of the most interesting is in the Czech Republic, where we expect the Czech central bank (CNB) to cut the key policy rate from 0.25% to the absolute bottom - to zero.
Contents
After Czech economic activity plummeted and the euro crises began to escalate, the CNB restarted monetary easing in June this year, having kept interest rates on hold since May 2010. Despite the CNB having eased monetary policy to some extent, the continued economic downturn, further disinflationary pressures and too strong Czech koruna, means that the action taken by the CNB has clearly not been enough and the effect on the real economy is very limited.
EMEA FX scorecard overview ............ 4
EMEA calendar ............................................. 3
EMEA FX forecast ...................................... 5 EMEA fixed income forecast................ 6
The CNB board members had been quite divided over the need for further monetary easing, as some of the board members thought that monetary policy is already easy because interest rates are so low. However, the latest comments from CNB board members show that the majority of the CNB board members now see that further monetary easing is warranted and apart from using interest rates, the main policy tool, the CNB might have to use other monetary policy instruments for effective monetary easing. The CNB has already agreed that the easiest and most effective non-standard tool would be to use the exchange rate channel. Will the CNB deliver more than a rate cut next week? Given that the CNB still has some room to use interest rates, we think it will cut the key policy rate to zero next week. Apart from this, we believe the CNB is likely to announce that further monetary easing is warranted based on the new inflation outlook (new inflation and GDP forecasts are due to be revealed next week). However, we find it unlikely that the CNB will announce a temporary target for the CZK to weaken the CZK or provide details of possible intervention in the FX markets. We must stress that the risk of a substantially weaker CZK has increased markedly. We therefore recommend being short CZK going into the next week.
Hungarian central bank ready to cut again The Hungarian central bank (MNB) is broadly expected to cut by another 25bp to 6.25% at next week’s monetary policy council meeting. Considering that the council is firmly in the hands of government-appointed council members, we expect the MNB to continue monetary easing in coming months – despite a further increase in Hungarian inflation to 6.6% y/y in September – well above the MNB’s official inflation target of 3.0%. The continued rise in Hungarian inflation is worrying, particularly because the lacklustre growth in the Hungarian economy to a large extent reflects deteriorating supply-side conditions. Therefore, contrary to most places in Europe, monetary policy is unlikely to improve growth fundamentally without inflation getting seriously out of control.
Chief Analyst Lars Christensen +45 45 12 85 30
[email protected] Analyst Stanislava Pravdova +45 45 12 80 71
[email protected]
Important disclosures and certifications are contained from page 8 of this report. www.danskeresearch.com
EMEA Weekly
Bank Rossii faces dilemma: once again Bank Rossii, Russia's central bank, is due to hold a policy meeting in the first nine days of November. We expect a 25bp increase in the refi rate to 8.50% and a 25bp hike in other policy rates, as the central bank has continually stated that inflation is above its target (56%). As of 15 October, CPI climbed to 6.8% y/y. Despite unchanged rates in October and slowing economic growth, Bank Rossii has been very hawkish, emphasising the importance of controlling inflation. The central bank’s chairman Sergey Ignatiev recently said it understands the non-monetary nature of Russian inflation and that there are ‘no serious domestic risks to economic stability’. Yet, political pressure to slow down price increases remains high; thus, Bank Rossii must do something about this. As we had expected tightening monetary policy did not help much to restrain price growth in Russia To a large extent, inflation has accelerated also due to aggressive price hikes by state monopolies in July and September and a poor competitive environment. We see the hawkish stand as slightly RUB positive. Yet, risk sentiment remains the main driver of RUB rates.
Lithuania maintains decent growth We believe Lithuanian GDP growth accelerated in Q3 12 to 3.0% y/y, up from 2.2% y/y in Q2 12. The poor Q2 result was affected by one-offs, such as the suspension of operations at the ORLEN Lietuva oil refinery, while exceptionally good agricultural results should support the Lithuanian economy in Q3 as well. However, the expected positive surprise on Q3 would be temporary in nature and the whole year result should not exceed 3% in average, in our view. Thus, we leave our forecast unchanged and expect the Lithuanian economy to expand by 2.7% in 2012.
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EMEA Weekly
Calendar
EMEA Data and Events in Week 44 Monday, October 29, 2012
Danske Bank Consensus Previous
Period
ZAR
7:00 Private sector credit
y/y
Sep
7.93%
ZAR
7:00 Money supply M3
y/y
Sep
7.78%
LTL
10:00 GDP (preliminary)
y/y
3rd quarter
LVL
11:00 Retail sales
y/y
Sep
Tuesday, October 30, 2012 EEK
7:00 Retail trade
HUF
9:00 Unemployment
HUF 14:00 Central Bank meeting (rate decision)
Sep
%
Sep
EEK
7:00 Industrial production
TRY
9:00 Trade balance
Danske Bank Consensus Previous 9.7%
%
Wednesday, October 31, 2012
6.25%
y/y
Sep Sep
7.0% 10.5%
10.4%
6.25%
6.50%
Danske Bank Consensus Previous
Period USD bn.
2.2% 10.0%
Period y/y
3.0%
3.6%
-2.8% -5.9
HUF
9:00 Producer prices
y/y
Sep
CZK
10:00 Money supply
y/y
Sep
6.6%
ZAR
13:00 Trade balance
ZAR bn.
Sep
-12.2
Thursday, November 1, 2012 CZK
-
Budget balance
RUB
-
Refinancing rate (1-9 Nov)
-
Unemployment (1-4 Nov)
ZAR
Danske Bank Consensus Previous
Period CZK bn.
5.1%
1.8%
Oct
-71.4
%
8.50%
8.25%
%
3rd quarter
RUB
6:00 PMI
Index
Oct
52.4
TRY
9:00 PMI
Index
Oct
52.2 48.0
CZK
9:30 PMI
Index
Oct
ZAR
10:00 PMI
Index
Oct
CZK 13:00 Monetary policy meeting
%
Friday, November 2, 2012 RON
-
Central bank meeting (rate decision)
24.9%
46.2
0.0% Period
%
0.25%
Danske Bank Consensus Previous
5.25%
5.25%
5.25%
PLN
8:00 PMI
Index
Oct
47
HUF
9:00 PMI
Index
Oct
52.5
ZAR
10:00 Naamsa vehicle sales
y/y
Oct
1.3%
Note: The editors do not guarantee the accuracy of the figures, hours or dates stated above All release times are CET Source: Danske Markets
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EMEA Weekly
EMEA FX scorecard overview Score PLN
Score HUF
EMEA FX scorecard outline
5.0 2.5
Total
Carry
Macro
Source: Danske Markets calculations
Source: Danske Markets calculations
Score CZK
2.5
Source: Danske Markets calculations
Source: Danske Markets calculations
Score ZAR
Score RON
5.0
5.0
2.5
2.5
0.0
0.0
Source: Danske Markets calculations
Score ILS
Score total
Total Total
Valuation
Global
Carry
Macro
Total
Valuation
Source: Danske Markets calculations
5.0
5.0 2.5
Source: Danske Markets calculations
25 October 2012
score based on leading global indicators, a liquidity score based on G3 real rates and a sentiment score based on performance in global equity markets and traditional funding currencies. currencies are over/undervalued compared with the long-term trend in the real effective exchange rate (REER). The trend is adjusted for external imbalances, i.e. an imbalance-adjusted REER. The scores are calibrated to reflect the short-term impact of the valuation on FX.
Total
Valuation
Global
0.1
Macro
Total
-5.0 Valuation
-5.0
Global
-2.5 Carry
-2.5 Technical
0.0
Macro
0.0
Carry
0.3
Technical
2.5
in local three-month rates, carryto-risk, spread versus EUR or USD three-month rates and spread versus peers.
Valuation: calculates whether
-2.5 -5.0
Com
Global
Carry
Technical
Macro
-5.0
momentum in different monthly macro indicators.
Global: consists of a global growth
0.0
Technical
0.0
-2.5
Valuation
Global
Total
Carry
Macro
-0.4 Carry
-5.0
Macro: calculates the growth
Carry: calculates the momentum
Macro
-5.0
Valuation
-2.5 Global
-2.5 Technical
0.0
Technical
0.1
0.0
scale from +5 to -5. A score is then derived by combining the different sub-scores.
momentum in different volatility measures, short- and longer term moving averages and the level of the relative strength index.
5.0
2.5
All scores are computed on a
Technical: calculates the
Score TRY
5.0
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Total
-5.0
Valuation
-5.0
Macro
-2.5 Valuation
-2.5 Global
0.0
Technical
0.0
0.7
Global
0.3
Carry
2.5
Technical
5.0
Source: Danske Markets calculations
www.danskeresearch.com
EMEA Weekly
Currency forecast, EMEA Oct 25. 2012 Actual
EUR
USD
SEK
NOK
1.30
-
668
573
574
+3m +6m
1.35 1.35
-
630 622
541 537
553 553
+12m Actual
1.30 4.15
3.19
646 209
550 180
573 180
+3m +6m
4.00 4.10
2.96 3.04
213 205
183 177
187 182
+12m Actual
4.15 280
3.19 215
202 3.10
172 2.66
180 2.67
+3m +6m
275 280
204 207
3.09 3.00
2.65 2.59
2.71 2.66
+12m Actual
280 24.9
215 19.2
3.00 34.8
2.55 29.9
2.66 29.9
+3m +6m
25.2 25.5
18.7 18.9
33.7 32.9
29.0 28.4
29.6 29.3
+12m Actual
25.5 0.70
19.6 0.54
32.9 1247
28.0 1070
29.2 1072
+3m +6m
0.70 0.70
0.52 0.52
1214 1200
1043 1036
1066 1066
+12m Actual
0.70 3.45
0.54 2.66
1200 251
1021 216
1064 216
+3m +6m
3.45 3.45
2.56 2.56
246 243
212 210
216 216
+12m Actual +3m
3.45 4.57 4.55
2.65 3.51 3.37
243 190 187
207 163 160
216 163 164
+6m +12m
4.55 4.60
3.37 3.54
185 183
159 155
164 162
Actual +3m
1.96 1.96
1.51 1.45
444 435
381 373
381 381
+6m +12m
1.96 1.96
1.45 1.50
429 429
371 366
381 381
Actual +3m
2.34 2.50
1.80 1.85
371 340
318 292
319 298
+6m +12m Actual
2.57 2.54 40.59
1.90 1.95 31.2
327 331 21.4
282 281 18.4
290 293 18.4
+3m +6m
38.9 38.1
28.8 28.2
21.9 22.1
18.8 19.1
19.2 19.6
+12m Actual
40.4 10.62
31.1 8.17
20.8 81.7
17.7 70.1
18.5 70.2
+3m +6m
12.02 13.23
8.90 9.80
70.7 63.5
60.8 54.8
62.1 56.4
+12m Actual
13.03 11.32
10.02 8.71
64.5 76.7
54.9 65.8
57.2 65.9
+3m +6m
11.88 12.02
8.80 8.90
71.5 69.9
61.4 60.3
62.8 62.1
+12m Actual +3m +6m +12m
11.83 5.02 5.27 5.27 5.01
9.10 3.86 3.90 3.90 3.85
71.0 173.0 161.4 159.5 167.8
60.4 148.4 138.7 137.7 142.9
63.0 148.6 141.7 141.7 148.9
USD
PLN
HUF
CZK
LVL
LTL
RON
BGN
TRY
RUB
UAH
ZAR
ILS
DKK
Source: Reuters EcoWin, Danske Markets
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EMEA Weekly
Fixed income forecast, EMEA
18/10/2012
PLN
HUF
CZK
TRY
ZAR
RON
ILS
Key interest rate
Actual
4.75
+3m
4.00
+6m
3.75
+12m
3.75
Actual
6.50
+3m
6.00
+6m
5.75
+12m
5.75
Actual
0.25
+3m
0.00
+6m
0.00
+12m
0.00
Actual
5.75
+3m
5.75
+6m
5.75
+12m
5.75
Actual
5.00
+3m
4.50
+6m
4.50
+12m
4.50
Actual
5.25
+3m
5.00
+6m
5.00
+12m
5.00
Actual
2.25
+3m
2.25
+6m
2.25
+12m
2.25
Source: Danske Markets
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EMEA Weekly
Emerging markets contacts Emerging Markets Research Lars Christensen
+45 45 12 85 30
[email protected]
Flemming Jegbjærg Nielsen
+45 45 12 85 35
[email protected]
Violeta Klyviene
+370 5 2156992
[email protected]
Stanislava Pravdova
+45 45 12 80 71
[email protected]
Alexander Reventlow
+45 45 12 85 48
[email protected]
Vladimir Miklashevsky
+358 10 546 7522
[email protected]
Global Retail SME, FX Stig Hansen
+45 45 14 60 86
[email protected]
Flemming Winther
+45 45 14 68 24
[email protected]
Trading FX, Fixed Income, Danske Markets Frank Sandbæk Vig
+45 45 14 67 96
[email protected]
Thomas Manthorpe
+45 45 14 69 68
[email protected]
Markku Anttila
+358 10 513 8705
[email protected]
Perttu Tuomi
+358 10 513 8738
[email protected]
Danske Bank Poland, Warsaw Maciej Semeniuk
+48 22 33 77 114
[email protected]
Bartłomiej Dzieniecki
+48 22 33 77 112
[email protected]
Howard Wilkinson
+358 50 374 559
[email protected]
Martins Strazds
+371 6707 2245
[email protected]
Giedre Geciauskiene
+370 5215 6180
[email protected]
Rainer Änilane
+372 675 2471
[email protected]
Danske Markets Baltics
ZAO Danske Bank Russia, Saint-Petersburg Treasury Department Lenina Rautonen
+7 921 797 57 80
[email protected]
Vladimir Biserov
+7 812 332 73 04
[email protected]
Darja Kounina
+7 812 332 73 04
[email protected]
All EM research is available on Bloomberg DMEM
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EMEA Weekly
Disclosure This research report has been prepared by Danske Research, a division of Danske Bank A/S (‘Danske Bank’). The author of the research report is Lars Christensen, Chief Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the regulation by the Financial Services Authority are available from Danske Bank upon request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates This publication is updated on a weekly basis. Date of first publication See the front page of this research report for the date of first publication.
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