CEE banking sectors over-liquid, could support demand for bonds. The region is very heterogeneous, however.
The most interest interesting thing to follow in CEE this week will be the ongoing effort of the CNB to keep the EURCZK above 27. According to our estimates, YTD speculative capital inflow has already totaled EUR 9bn, fueled by speculation on an early exit and strong appreciation of the CZK right after the exit. We have doubts about the latter, as huge long positions have already been built in CZK, which would be difficult to close (i.e. finding a counterparty) for many, many months after the exit. In any case, we will likely hear more comments from the central bank this week on this topic.
We are eagerly awaiting more news on the Romanian budget for 2017, which should be submitted and approved by the end of January. Among macro releases, only PL industrial output and retail sales (we expect growth at 1.9% and 5.9% y/y, respectively) will be somewhat relevant.
On Radar: CEE banking sectors are still largely over-liquid. The region is very heterogeneous, however: the Czech Republic boasts the largest pool by far, having extra liquidity at almost 30% of GDP. This is due to the ongoing interventions from the central bank to keep the koruna from appreciating. The other end of the spectrum is Romania, where surplus liquidity was drained toward the end of last year, and although it likely increased recently (due to fiscal spending), this can only be temporary. Hungary visibly exhausted its surplus liquidity in its Self-Financing Program last year, although the surplus still exceeds 3% of GDP. Poland, where fiscal woes contribute to bond market jitters (apart from global trends), has a large surplus that could theoretically be channeled into the bond market, but this would need a more activist central bank. Croatia and Serbia also enjoy relatively large liquidity surpluses that could help the bond markets going forward.
More on: CEE insights 16 January