CZECHIA: Spiralling Conflict Between President & Gov't Takes Limelight
Jan-28 08:45
- Local politics was rocked yesterday as President Petr Pavel released screen shots of text messages from Foreign Minister Petr Macinka (Motorists) and threatened legal action over alleged blackmail. In a series of messages sent to Pavel's aide Petr Kolář, Macinka warned that if the head of state does not appoint his party's honorary chairman Filip Turek to the position of Environment Minister, he will 'burn bridges in a way that will go down in political science textbooks', showing 'no scruples', and unleashing 'consequences [that] will come as a great surprise'. He further insisted that he has the support of the governing coalition and Prime Minister Andrej Babiš.
- Macinka subsequently played down his messages as a normal way of doing business in politics. Separately, Babiš described his words as 'unfortunate' and said that they constituted Macinka's private communication with Pavel's adviser. Chamber of Deputies Speaker Tomio Okamura said that he was definitely not on the President's side in the conflict.
- According to Macinka, Pavel should not represent Czechia at this summer's NATO summit in Turkey. Prime Minister Andrej Babiš had previously signalled that Pavel would lead the Czech delegation, in line with the local convention.
- Macinka's messages fuelled speculation that he has been undermining efforts to help Ukraine. In one of the texts, he suggested that the government's ban on the export of L-159 combat aircraft to Kyiv was a retaliation for the lack of ministerial nomination for Turek, but also noted that he 'convinced [Speaker] Tomio' Okamura to lift his opposition to the continuation of the so-called ammunition initiative, and could help Pavel achieve his foreign policy goals if he complies with his demands.
- Meanwhile, Seznam Zprávy reported that Macinka has quietly reduced mobility restrictions imposed on Russian diplomats to the legally required minimum and 'torpedoed the creation of a system that would connect individual security institutions and allow them to share information about potential threats from Russian spies under diplomatic cover.'
- CNB Deputy Governor Jan Frait told Reuters that the Bank Board could consider a small rate cut at its February meeting in response to disinflationary external developments. However, he said there were no arguments for a cut in the domestic economy, while rates should stay unchanged or fall a little bit this year, by no more than 50bp.
- The Exporters' Association said that Czech companies lost over CZK100bn due to currency appreciation last year.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
GILTS: Rallying Alongside Peers
Dec-29 08:25
UK paper plays catch up to the rally in wider core global FI markets.
- Futures trade as high as 91.30, through initial resistance at 91.18. Next upside level of note 91.78.
- Conversely, initial support is located at 90.50.
- Yields 1-3bp lower, curve flatter.
- 10s back below 4.50%, oscillating around that level since early December.
- 2s10s 1bp lower at 75.9bp after the recent steepening move failed to breach 80bp, leaving the November high (80.31bp) intact.
- Gilt/Bunds stable around 164bp after the recent failed foray below 160bp.
- GBP STIRs trade around pre-gilt open levels identified earlier. Next 25bp BoE rate cut fully discounted through June, ~39bp of easing priced through November.
- Little in the way of meaningful UK news flow since markets closed for Christmas, with broader geopolitical matters at the fore.
- No tier one UK data releases are due until the new year.
STIR: Little Conviction In An ECB Rate Move Next Year
Dec-29 08:17
Front-end EUR rates maintain a mild hiking bias through next year. However, there is little conviction in a deposit rate move away from 2% at this stage. ECB officials have stressed that policy remains in a “good place”, and Executive Board member Schnabel re-iterated that she does not see a rate move for foreseeable future last week - somewhat tempering the hawkish interpretation of comments made earlier this month.
- ECB-dated OIS price just under 5bps of hikes through December 2026, while the 1y ESTR swap rate is only marginally above the current overnight rate.
- The 1y1y ESTR forward rate embeds a much greater implied probability of a hike in the coming years, but whether this is realised depends crucially on the implementation of and realised growth impulses from Germany’s fiscal expansion.
- Today’s regional calendar is light, while tomorrow sees December flash inflation data from Spain. Analysts expect HICP inflation to fall back to 3.0% Y/Y (vs 3.2% prior).
- Eurozone-wide flash December inflation is not due until January 7.
GILTS: Seen Higher at Open
Dec-29 07:59
Desks calling futures 91.25-35 at the open.
