Contents. What to watch next week. What to watch in the week ahead Summary of recent macro and market events Forecast tables Macro diary

Transcription

1 Contents What to watch in the week ahead Summary of recent macro and market events Forecast tables Macro diary What to watch next week Local market movers CSO is set to publish preliminary November trade, IP and retail statistics next week. Retail sales are expected to reman strong; the IP and trade figures may give some information about how weaker European growth was affecting the Hungarian industrial sector. External developments Following the release of the weak EZ PMI s, next week s German IP and orders data will be closely watched for signs of how the German economy is coping with weaker global demand. The Minutes of the December FOMC meeting will be in the focus in the US. Fed rate hike expectations shifted quite drastically this week (after the disappointing ISM data and the stock market rout), therefore it will be

2 interesting to see more details of how FOMC members evaluated the economic and financial market outlook last month. Summary of recent macro and market developments Tight labor market conditions to prevail Hungary state budget: 0.4% ESA deficit in Q1-Q The Hungarian labor market remains extremely tight, the unemployment rate dropped to a new historic low (3.6%) in the September-November period. The number if unemployed persons fell below 170K, the number of public workers decelerated further and is now standing in the vicinity of 130K. Although the number of employed decreased marginally, it can fully be explained by seasonal factors. The unemployment rate including public workers is 6.4%. Labor demand remains strong, reserves are getting exhausted, which in turn exerts and upward pressure on wages. Strong underlying wage trends alongside with the 8% increase of the minimum wage and the guaranteed wage minimum is expected to push whole economy gross wages up by ~9-10% this year (after rising by ~11% in 2018), but the growth rate of real wages is set to decelerate (but remain robust) in tandem with rising CPI inflation. According to the CSO release at the beginning of January, preliminary data showed a deficit of HUF 110 billion, or 0.4% of GDP for the first three quarters of 2018 in the government sector. Compared to the same period of 2017, the balance improved by HUF 54.4 billion, or 0.2pp of GDP. The Q1-Q3 shows a 2pps smaller gap compared to the 2018 deficit target. Revenues rose significantly on the back of the higher-than-expected GDP growth and partly due to high wage growth and their growth was not tracked at the same rate by expenditure growth. Total revenue growth exceeded nominal GDP growth, approaching 11% (10.7%, compared to the same period last year). The increase in VAT revenues (14.3%) was outstanding within tax revenues. The total expenditure growth was 10.1%. The government sector s interest

3 expenses fell by HUF 30.7 billion or 3.8%. In terms of the third quarter alone, the government sector deficit improved by 3.2pps compared to the previous year, to HUF 75.8bn, 0.7% of GDP. This was basically the same as the cash flow deficit, i.e. the large increase in cashbased deficit due to EU pre-financing (which was typical in the first half of 2018), was virtually eliminated and the resulting annual deficit may have dropped to minimal levels due to the arrival of EU funding of around HUF bn in the last quarter. On January 9 the Ministry of Finance is expected to provide information on the cash balance of December 2018 (together with the full-year cash-based data) and based on these data, an unofficial estimate of the annual ESA deficit may also arrive. Depending on the size of expenditures in December, the annual ESA deficit may be significantly lower than the 2.4% plan. According to the NBH's mid-december forecast, a final result of % may be expected, i.e. the deficit may be slightly lower than in In 2019, according to the official plan, a significant deficit reduction is required, with the target of 1.8% of GDP.

4 Source: CSO EUR/HUF close to 320, with elevated volatility at the beginning of January The forint closed 2018 in the EUR/HUF range, essentially matching our forecast. This implies an appreciation close to 3% compared to the EUR/HUF peak of the mid-summer weakening wave but for the whole of 2018 the forint showed a weakening of about 4% against the euro. With this annual performance, the forint (along with the slightly better-performing Czech and Polish currencies) is in the middle of the global emerging market ranking. In the lead, we find the Mexican, Thai and Hong Kong currencies (with 4-5% gains), while the biggest losses against the euro were recorded by the Argentine peso, the Turkish lira and the Russian rouble. In the last days of December, the range was typical of the EUR/HUF market, while in the first days of January it shifted to , true, rather close to level 321 at the time of closing our research report. Trading in the first shortened working week of 2018 was not yet fullfledged, but volatility has already increased substantially. Primarily due to global uncertainties, we can expect higher fluctuations compared to 2018 throughout the year, but according to our forecast, no major shift of the trend of EUR/HUF levels is likely. At the end of 2019, the EUR/HUF cross exchange rate may stay slightly below the 320 level, while we expect a slightly stronger forint appreciation against the dollar compared to the shift versus the euro.

5 CE3 GOVERNMENT BOND YIELDS HU PL CZ EU SPOT (bid) yield (%) spread (bp) yield (%) spread (bp) yield (%) spread (bp) yield (%) 1Y 0, , , ,57 3Y 1, , , ,57 5Y 2, , , ,33 10Y 2, , , ,18 60-DAY AVG yield (%) spread (bp) yield (%) spread (bp) yield (%) spread (bp) yield (%) 1Y 0, , , ,65 3Y 1, , , ,51 5Y 2, , , ,21 10Y 3, , , ,36 Source: Reuters

6 Maroeconomic and market forecasts Unit GDP growth, y/y - CIB forecast GDP growth, y/y - Market consensus Industrial production, y/y Trade balance % 2,0 4,0 4,6 3,2 % - 3,8 4,3 3,2 % 0,9 4,8 4,7 4,9 EUR mln CPI, y/y, average CPI, y/y, average - CIB forecast % 0,4 2,4 2,9 3,4 - Market consensus % - - 2,9 3,2 CPI, y/y, end of period - CIB forecast % 1,8 2,1 3,3 3,3 CPI, y/y, end of period - Market consensus % Budget balance / GDP (ESA, including one-off revenues) % -1,7-2,0-2,3-2,4 EXCHANGE RATES, QUARTERLY AVERAGE 2018 Q Q Q Q4 EUR/HUF CHF/HUF USD/HUF EUR/CHF 1,17 1,13 1,13 1,19 EUR/USD 1,18 1,14 1,16 1,17 GBP/USD 1,36 1,28 1,29 1,30 GBP/HUF INTEREST RATE FORECASTS (eop) NHB base rate 0,90% 0,90% 0,90% 0,90% HU 3M BUBOR 0,26% 0,25% 0,30% 0,40% Fed Funds rate 2,00% 2,50% 2,75% 3,00% ECB refi rate 0,00% 0,00% 0,00% 0,25% SNB 3M Libor target -0,75% -0,75% -0,75% -0,75%

7 Macro diary Week 2 MONDAY 01/07/2019 DE 8:00 Industrial orders, m/m November 0,3% -0,1% HU 9:00 Retail sales, y/y November 5,5% EZ 11:00 Retail sales, m/m November 0,3% 0,1% TUESDAY 01/08/2019 DE 8:00 IP, m/m November -0,5% 0,3% HU 9:00 IP, y/y November 3,3% US 14:30 Trade balance, USD bln November -55,5-53,4 AUCTIONS Amount Previous Forecast Result HU 11:30 3M T-bill HUF 30 bln 0,03% WEDNESDAY 01/09/2019 HU 9:00 Trade balance, EUR mln, preliminary November 304 EZ 11:00 Unemployment rate November 8,1% 8,1% HU 14:00 NBH MC-minutes December US 20:00 Fed FOMC-minutes December PL ~ NBP interest rate decision January 1,50% 1,50% THURSDAY 01/10/2019 CZ 9:00 CPI, y/y December 2,0% 2,1% US 14:30 Initial jobless claims, thousands w/e 231 AUCTIONS Amount Previous Forecast Result HU 11:30 12M T-bill HUF 20 bln 0,41% FRIDAY 01/11/2019 US 14:30 CPI, m/m December 0% -0,1% US 14:30 Core CPI, m/m December 0,2% 0,2%

8 Week 1 MONDAY 12/31/2018 No major data releases TUESDAY 01/01/2019 No major data releases WEDNESDAY 02/01/2019 HU 9:00 Manufacturing PMI December 53,5 54,2 HU 9:00 Unemployment rate November 3,7% 3,6% EZ 10:00 Manufacturing PMI, final December 51,4 51,4 51,4 THURSDAY 03/01/2019 EZ 10:00 M3 growth rate, y/y November 3,9% 3,7% US 14:15 ADP, change in private sector employment, thousands December US 14:30 Initial jobless claims, thousands weekly US 16:00 ISM index December 59,3 59,4 54,1 AUCTIONS Amount Previous Forecast Result HU 11:30 3Y bond 25 mrd 1,27% 1,19% HU 11:30 5Y bond 34 mrd 2,66% 2,27% HU 11:30 10Y bond 30 mrd 3,15% 2,76% FRIDAY 04/01/2019 DE 9:55 Unemployment rate December 5% 5% 5% EZ 10:00 Services PMI, final December 51,4 51,4 51,2 EZ 10:00 Composite PMI, final December 51,3 51,3 51,1 EZ 11:00 HICP, y/y, flash December 1,9% 1,8% 1,6% EZ 11:00 Core HICP, y/y, flash December 1,1% 1,1% 1,1% EZ 11:00 PPI, y/y December 4,9% 4,1% 4% US 14:30 Unemployment rate December 3,7% 3,7% US 14:30 NFP, change in non-farm payrolls, thousands December

9 Contacts Resarch Sales Equity Sales FI, FX Mariann Trippon Head of Research Sándor Jobbágy Senior analyst Balázs Borók Balázs Pápay Balázs Tóth Zsolt Márvány Head of Treasury sales Sándor Fenyvesi FI sales Zoltán Verzár FI sales Mária Juhász FX sales Péter Kelemen FX sales Gábor Horváth FX sales THIS DOCUMENT IS NOT A PROSPECTUS, AN OFFER OR AN INVITATION TO BUY OR SELL ANY SECURITIES UNDER HUNGARIAN OR FOREIGN LAW. THIS DOCUMENT IS BEING FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE PUBLISHED IN THE PRESS OR ANY OTHER MEDIA.ANY INVESTMENT DECISION WITH RESPECT TO ANY SECURITIES OF THE RESPECTIVE COMPANY MUST BE MADE ON THE BASIS OF AN OFFERING CIRCULAR OR PROSPECTUS APPROVED BY SUCH COMPANY AND NOT ON THE BASIS OF THIS DOCUMENT. THIS DOCUMENT HAS BEEN PREPARED USING SOURCES BELIEVED TO BE RELIABLE AND ACCURATE. AS THE INFORMATION CONTAINED IN THIS REPORT HAS NOT BEEN INDEPENDENTLY VERIFIED, NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED IS MADE AS TO THE FAIRNESS ACCURACY OR COMPLETENESS OF THE INFORMATION AND OPINIONS CONTAINED IN THIS DOCUMENT. THE INFORMATION AND OPINIONS IN THIS REPORT ARE SUBJECT TO CHANGE WITHOUT NOTICE. ANY OPINIONS AND PROJECTIONS CONTAINED IN THIS DOCUMENT ARE ENTIRELY THOSE OF THE AUTHORS. NEITHER THE RESPECTIVE COMPANY, CIB BANK CLOSELY-HELD CORPORATION, NOR ANY OTHER PERSON ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION THEREWITH.