On global markets: The most important macro release next week for the EURUSD will be US retail sales for March on Monday. Market expectations are high and a significant growth rate would be important, given the poor start of retail sales figures into the year. Geopolitical risks should also be a determining factor next week, as a military strike on Syria by Western Allies looks likely, with unknown consequences. At the same time, theEURUSDhas remained relatively calm amidst the increase of tensions already last week
CEE currencies: Currencies gained across the board against the EUR in CEE (apart from the Romanian leu), with the strongest appreciation happening in Poland and slightly smaller gains on the HUF market. As for Hungary, after the elections, the old-new government pledged a stable fiscal performance, which, looking at the last years' performance, seems credible, which markets seem to like this. In Poland, further currency gains may be limited, as a rate hike is now increasingly unlikely to happen earlier than 2020. As for Romania, the leu is not expected to follow CEE currencies northward, despite its current laggard performance and expected rate hikes - the central bank is unlikely to want a much stronger currency, as this could exacerbate already existing current account problems. In Serbia, despite the additional rate cut, the dinar could hold steady. Elsewhere, we do not see much currency volatility going forward; the Croatian kuna should continue with its slow appreciation tendency, courtesy of the usual seasonal pattern of higher demand for kunas as the tourist season approaches.
CEEratesand yields: Bonds also gained amid the global sentiment in CEE. Spreads over German Bunds tightened slightly as well. Central banks are unlikely to rush with hikes; we just postponed our call for the first rate hike to well after 2019 for Poland, while Czech rates will also not increase earlier than 4Q18. Hungarian bonds benefitted most last week post-elections, and low inflation prints could support further MNB action later this year, possibly paving the way for further spread compression. In Serbia, the surprising rate cut is unlikely to be followed by additional ones, as we do not think that lower rates have much effect in propping up inflation. In Romania, high inflation is somewhat of a concern, although current nominal l/t yield levels are already pretty high in a regional comparison, making it unlikely to show a strong increase, while the abundant interbank liquidity could likely remain in place until the summer months. Somewhat weaker economic data in the Euro Area recently also makes it less likely that we will see aggressive ECB tightening. Thus, all factors seem to point toward muted yields in the region going forward.