Investment Research — General Market Conditions
14 March 2013
EMEA Weekly The forint storm Weak Polish numbers ahead, hopefully NBP will take heed The Polish economy has been slowing and next week’s macroeconomic numbers are likely to confirm this. Wage data for February will be released on Monday and we expect average gross wages to have increased by 3.0% y/y. More concerning are the industrial production numbers due for release on Tuesday, which are likely to show that production decreased by around 1% y/y. So, even though NBP signalled that last week’s cut was the end of the cutting cycle, next week’s numbers could be a reminder that it should not stay on hold. If Polish macro data continue to be poor, the market may soon start to price in further cuts from NBP despite the hawkish rhetoric, as the central bank’s communication has shown to be somewhat misleading sometimes.
Contents Russia: Nabiullina to head CB ............ 2 EMEA calendar ............................................. 3 EMEA FX scorecard overview ............ 4 EMEA FX forecasts .................................... 5 EMEA fixed income forecasts ............. 6
Hungarian policymakers scare investors – forint collapses The Hungarian forint took a beating this week, in particular following major sell-offs on Monday and Tuesday. This comes on the back of some very unfortunate comments from Hungarian Prime Minister Viktor Orban and the new central bank governor, György Matolcsy. Orban is, among other things, talking about scaling back foreign bank ownership – in effect threatening to nationalise part of the Hungarian banking sector. Furthermore, we are somewhat concerned that the new central bank governor, György Matolcsy, has effectively fired his two deputy governors, Ferenc Karvalitis and Julia Kiraly – or at least taken away their responsibilities. These responsibilities – monetary strategy and financial stability – have been transferred to Matolcsy’s own appointment, Adam Balog. In EMEA Weekly last week we warned that the forint sell-off could continue – and that certainly has happened. However, the situation is clearly getting much worse than we had feared and the extent to which Hungarian policymakers seem to be completely ignoring the risks is a significant concern. If the Hungarian government and the new central bank leadership continue to pursue such a highly unorthodox policy, there is a serious risk of a major market meltdown. We find it difficult to see how the Hungarian government will fund itself on the international capital markets if the government and central bank do not move very soon to calm market fears. Unfortunately we do not hold out much hope of this happening and the risk therefore continues to be skewed towards an even bigger forint sell-off. Furthermore, we think there is a risk that the Hungarian government could move to implement new draconian policy measures – such as currency and capital controls. Finally, the escalation of financial distress and the extreme policy uncertainty is very likely to further hit economic growth in Hungary.
Important disclosures and certifications are contained from page 8 of this report.
Chief Analyst Lars Christensen +45 45 12 85 30
[email protected]
www.danskeresearch.com
EMEA Weekly
Russia: Elvira Nabiullina to head Russian Central Bank President Putin has nominated Elvira Nabiullina, his aide and former economy minister, as next governor of Russia’s central bank (CBR). The nomination is expected to be approved by parliament and Nabiullina will take up the position in late June. The nomination was somewhat surprising as Putin had promised last week. Despite the fact that Elvira Nabiullina is professionally qualified for the task, we are slightly concerned that the CBR might take a step towards being less independent than under the former governor Sergei Ignatiev. However, the current path of the CBR towards inflation targeting and a flexible exchange rate is likely to continue, as the policy is widely supported by politicians as well. Despite the unexpected nomination, we keep our rate forecast unchanged. As inflation is likely to ease rapidly in H2 13, we expect a total of 100bp rate cuts this year, starting with a moderate 25bp cut in April or May, given that inflation is showing the first signs of slowing. We expect inflation to ease to 5.5% by year-end, allowing the CBR to cut rates to support slowing economic growth. Other measures to support credit growth are likely to be on the agenda as well, given that bank lending is an important factor enhancing economic growth in Russia.
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EMEA Weekly
Calendar
EMEA Data and Events in Week 12 Monday, March 18, 2013
Period
RUB
-
Industrial production (18-19 March)
y/y
Feb
RUB
-
PPI (18-19 March)
y/y
Feb
LVL
-
Unemployment rate (18-22 Mar)
%
Feb
PLN
14:00 Core inflation
y/y
Feb
PLN
14:00 Wages
y/y
Feb
PLN
14:00 Employment
y/y
Feb
Tuesday, March 19, 2013
Period
PLN
14:00 Industrial production
y/y
Feb
PLN
14:00 Producer prices
y/y
Feb
Wednesday, March 20, 2013
Period
Danske Bank Consensus Previous -0.7% 5.9%
4.8%
-0.8% 5.1% 10.9%
1.3% 3.0%
2.9%
0.4%
-0.9%
-0.8%
Danske Bank Consensus Previous -1.0%
-1.6%
0.3%
-0.5%
-1.2%
Danske Bank Consensus Previous
RUB
-
Disposable income (20-21 March)
y/y
Feb
0.1%
1.6%
0.7%
RUB
-
Real wages (20-21 March)
y/y
Feb
5.6%
6.2%
8.0%
RUB
-
Retail sales (20-21 March)
y/y
Feb
4.4%
3.3%
3.5%
RUB
-
Unemployment (20-21 March)
%
Feb
5.8%
5.9%
6.0%
RUB ZAR
-
GDP (20-25 March) Monetary Policy Council meeting
y/y %
4th quarter
2.4% 5.00%
2.9% 5.00%
EEK
7:00 Producer prices
y/y
Feb
ZAR
9:00 CPI (all items)
y/y
Feb
Thursday, March 21, 2013
Period
HUF
9:00 Avg gross wages
y/y
Jan
LTL
10:00 Industrial production
y/y
Feb
LVL
12:00 Producer prices
y/y
Feb
Friday, March 22, 2013
Period
4.4%
5.6%
5.4%
Danske Bank Consensus Previous 4.8% 10%
4.9% 9.3% 2.1%
Danske Bank Consensus Previous
PLN
10:00 Retail sales
y/y
Feb
0.6%
3.1%
PLN
10:00 Unemployment rate
%
Feb
14.5%
14.2%
Note: The editors do not guarantee the accuracy of the figures, hours or dates stated above All release times are CET Source: Danske Bank Markets
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EMEA Weekly
EMEA FX scorecard overview Score – PLN
Score – HUF
5.0
5.0
2.5
2.5
EMEA FX scorecard outline
0.0
Valuation
Macro
Source: Danske Bank Markets calculations
Source: Danske Bank Markets calculations
Score – CZK
Score – TRY
5.0
5.0
2.5
2.5
0.0
0.0
Valuation
Global
Carry
Macro
Total
Source: Danske Bank Markets calculations
Source: Danske Bank Markets calculations
Score – ZAR
Score – RON
5.0
5.0
2.5
2.5
0.0
0.0
Valuation
Global
Macro
Total
Valuation
Com
Global
Carry
-2.5
-5.0 Carry
Technical
Macro
-5.0
0.4
Technical
-0.1
-2.5
Source: Danske Bank Markets calculations
Source: Danske Bank Markets calculations
Score – ILS
Score – total
2.5
Source: Danske Bank Markets calculations
14 March 2013
Total
Valuation
-0.1
Macro
Total
-5.0 Valuation
-5.0
Global
-2.5
Carry
-2.5
Technical
0.0
Macro
0.0
Global
0.9
Carry
2.5
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Valuation: calculates whether 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.
5.0
Technical
5.0
Carry: calculates the momentum in local three-month rates, carryto-risk, spread versus EUR or USD three-month rates and spread versus peers. Global: consists of a global growth 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.
Total
Valuation
Carry
Macro
Global
-5.0
Technical
-5.0
-0.6
-2.5
Technical
-0.5
-2.5
Macro: calculates the growth momentum in different monthly macro indicators. Technical: calculates the momentum in different volatility measures, short- and longer term moving averages and the level of the relative strength index.
Total
Total
Global
Carry
Technical
Macro
Valuation
-5.0
-5.0
Total
-0.5
Global
-2.5
-2.5
Carry
-0.3
Technical
0.0
All scores are computed on a scale from +5 to -5. A score is then derived by combining the different sub-scores.
Source: Danske Bank Markets calculations
www.danskeresearch.com
EMEA Weekly
Currency forecasts, EMEA Mar 14. 2013
USD
PLN
HUF
CZK
LVL
LTL
RON
BGN
TRY
RUB
UAH
ZAR
ILS
EUR
USD
SEK
NOK
DKK
Actual
1.29
-
646
580
577
+3m +6m
1.36 1.38
-
610 601
533 522
549 541
+12m
1.34
-
612
534
557
Actual
4.15
3.21
202
181
180
+3m +6m
4.25 4.25
3.13 3.08
195 195
171 169
176 176
+12m
4.20
3.13
195
170
178
Actual
306
237
2.73
2.45
2.44
+3m
295
217
2.81
2.46
2.53
+6m +12m
295 290
214 216
2.81 2.83
2.44 2.47
2.53 2.57
Actual +3m
25.6 26.0
19.8 19.1
32.7 31.9
29.3 27.9
29.1 28.7
+6m
26.2
19.0
31.7
27.5
28.5
+12m Actual
26.0 0.70
19.4 0.54
31.5 1192
27.5 1072
28.7 1064
+3m +6m
0.70 0.70
0.51 0.51
1186 1186
1036 1029
1066 1066
+12m Actual
0.70 3.45
0.52 2.67
1171 242
1021 217
1066 216
+3m
3.45
2.54
241
210
216
+6m +12m Actual +3m
3.45 3.45 4.40 4.36
2.50 2.57 3.40 3.21
241 238 190 190
209 207 171 166
216 216 170 171
+6m +12m
4.37 4.39
3.17 3.28
190 187
165 163
171 170
Actual +3m
1.96 1.96
1.51 1.44
427 424
384 371
381 381
+6m
1.96
1.42
424
368
381
+12m Actual
1.96 2.35
1.46 1.82
419 356
366 319
381 317
+3m +6m
2.38 2.51
1.75 1.82
349 331
305 287
313 297
+12m Actual
2.55 39.84
1.90 30.8
322 21.0
280 18.8
293 18.7
+3m
40.0
29.4
20.8
18.1
18.7
+6m +12m
41.0 38.9
29.7 29.0
20.2 21.1
17.6 18.4
18.2 19.2
Actual +3m
10.51 12.10
8.12 8.90
79.5 68.6
71.4 59.9
70.9 61.6
+6m +12m
13.52 13.43
9.80 10.02
61.4 61.1
53.2 53.3
55.2 55.6
Actual
11.97
9.25
69.8
62.7
62.3
+3m +6m
12.38 12.67
9.10 9.18
67.1 65.5
58.6 56.8
60.3 58.9
+12m Actual +3m +6m
12.57 4.79 4.91 5.01
9.38 3.70 3.61 3.63
65.2 174.5 169.1 165.7
56.9 156.7 147.7 143.7
59.4 155.7 151.9 148.9
+12m
4.92
3.67
166.7
145.4
151.7
Source: Bloomberg, Danske Bank Markets
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EMEA Weekly
Fixed income forecasts, EMEA
14/03/2013
PLN
HUF
CZK
TRY
ZAR
RON
ILS
Key interest rate
Actual
3.25
+3m
3.25
+6m
3.00
+12m
3.00
Actual
5.25
+3m
5.00
+6m
4.75
+12m
4.75
Actual
0.05
+3m
0.05
+6m
0.05
+12m
0.05
Actual
5.50
+3m
5.50
+6m
5.50
+12m
5.50
Actual
5.00
+3m
5.00
+6m
5.00
+12m
5.00
Actual
5.25
+3m
5.25
+6m
5.00
+12m
4.75
Actual
1.75
+3m
1.75
+6m
1.75
+12m
1.75
Source: Danske Bank 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 Pravdová-Nielsen +45 45 12 80 71
[email protected]
Alexander Reventlow
+45 45 12 85 48
[email protected]
Vladimir Miklashevsky
+358 10 546 7522
[email protected]
Sanna Elina Kurronen
+358 10 546 7573
[email protected]
Stig Hansen
+45 45 14 60 86
[email protected]
Flemming Winther
+45 45 14 68 24
[email protected]
Global Retail SME, FX
Trading FX, Fixed Income, Danske Bank 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]
Danske Bank Markets Baltics 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]
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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Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The authors of this research report are 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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