Unemployment Continues to Rise, Inflationary Pressures Weaken

On the Zagreb Stock Exchange, for most of last week, the leading indices fluctuated slightly on the edge of positive and negative territory, and only on Friday afternoon did they strengthen significantly, although trading volume was low, while defensive stocks and those with higher dividend yields were in focus for investors.

Last week, the Crobex index closed trading at 2,171 points, which is 1.56 percent higher than a week earlier. Crobex10 strengthened by 1.86 percent, to 1,161 points. Regular trading in shares reached around 115 million kuna, which is about 15 million more than a week earlier.

"The stock indices barely moved for most of the past week, and trading volumes were extremely low. Domestic funds are more oriented towards trading shares on foreign exchanges and the bond market, as almost nothing is happening on the domestic stock market," says Goran Vorkapić, broker and investment advisor at Centar Bank. The market only awakened from its lethargy on Friday, when Crobex rose by 1.39, and the Crobex10 index by 1.15 percent.

In focus for investors last week were defensive stocks and those with higher dividend yields. The stock of T-HT accounted for just over a third of the total trading volume last week. With a turnover of 38.4 million kuna, the price of that stock rose by 2.7 percent, to 319 kuna. Significant trading, around 7 million kuna, was also achieved with the stock of Ericsson Nikola Tesla, with its price rising by 1.45 percent, to 1,505 kuna.

Analysts at Erste Group estimated the target price of Ericsson Nikola Tesla’s stock at 1,549.9 kuna, giving it a ‘hold’ recommendation. With a dividend yield and estimated growth potential, this stock could bring a total return of over 10 percent in the next year, according to Erste Group analysts. The preferred stock of Adris was also in greater focus for investors, with 5.1 million kuna in turnover and a price jump of 4.74 percent, to 287 kuna. The regular stock of Adris strengthened by 9.68 percent, to 340 kuna.

The announcement by the Government that it will abolish the crisis tax rate of 2 percent on incomes between three and six thousand kuna from July 1 did not stimulate investors from last week’s lethargy, as it aims to strengthen domestic consumption.

"The issue of abolishing that tax has no impact on the domestic capital market, as it is an average of 80 kuna that will remain in citizens’ accounts, which is an insignificant amount for investors. I am not even sure that it will significantly stimulate consumption, and even if it does, what will it mean for domestic companies if more than 50 percent is spent on imported goods? For the domestic capital market, state investments, on which domestic companies largely depend, are more important, and they continue to be cut," notes Vorkapić.

At the beginning of last week, it was announced that state and public companies have reduced the value of contracts through public procurement this year by four billion kuna, to a total of 2.2 billion, due to budget savings. Last week, sharp price corrections in the construction sector were also halted. The stock of IGH, the most liquid with a turnover of 8.3 million kuna, weakened by 1.93 percent, to 2,491 kuna, while a week earlier it had fallen by more than 13 percent. The stock of Ingra, on the other hand, rose by more than 5 percent, to 39.5 kuna, Dalekovod by 2.7 percent, to 319 kuna, and Tehnika by 1.3 percent, to 1,611 kuna.

The data from the State Bureau of Statistics shows that times are tough for the construction industry, as 712 building permits were issued in January, which is 17.4 percent less compared to the same month last year. Of these permits, 89.3 percent relate to buildings, and 10.7 percent to other constructions. A somewhat better piece of news for this sector arrived on Friday when Prime Minister Jadranka Kosor announced that public companies will invest 12.6 billion kuna this year, and that capital projects worth approximately two billion kuna will be additionally financed from the budget.

In the shipping sector, however, most stocks weakened last week, despite the further rise of the dry bulk freight index BDI, which strengthened by more than 8 percent in the last seven days, to 3,506 points. The stock of Atlantska plovidba fell by 0.2 percent, to 1,010 kuna. The stock of Jadroplov weakened by 1.9 percent, to 174 kuna, and Tankerska plovidba by 3.5 percent, to 1,520 kuna. The stock of Uljanik plovidba, on the other hand, rose by 1.5 percent, to 657.69 kuna.

On global stock exchanges last week, for the second consecutive week, leading indices rose, but trading was cautious as investors are unsure whether macroeconomic data supports the trend of rising stock prices that has lasted for a year. On Wall Street last week, the Dow Jones index strengthened by 0.5 percent, and the S&P 500 index by 1 percent, to 1,149 points, which is close to its highest level in 17 months. European stock prices also rose moderately. The London FTSE and Paris CAC indices strengthened by 0.4 percent, while the Frankfurt DAX rose by 1.1 percent.

"A positive trend continues on global stock exchanges, supported mainly by the rise in stock prices in the banking sector, which had lagged behind the rest of the market. However, the American S&P 500 index at the level of 1,050 points faces significant resistance. Therefore, a significant positive news is awaited that could stimulate a breakthrough of that resistance level on a significant trading volume, and then the upward trend would likely continue," assesses Vorkapić. He adds that if the positive trend continues on global stock exchanges, it is expected that part of the good mood will also affect domestic investors.

From domestic macroeconomic indicators, the most important report next week will be on the number of unemployed in February, and data on inflation for that month will also be published. The Croatian Employment Service is expected to publish the number of unemployed on Monday. After 18,000 workers lost their jobs in January, and the number of unemployed reached 309,500, the highest level since March 2006, further growth in unemployment is expected.

Five macroeconomists who participated in a Hina survey estimate that between 5,500 and 11,500 workers lost their jobs in February. On average, they expect an increase in the number of unemployed by 9,500, to 319,000. This would be the highest number of unemployed since April 2005. The unemployment rate already reached 17.7 percent in January, the highest level since March 2006.

Five macroeconomists in the Hina survey estimate, on average, that the unemployment rate rose to 18.3 percent in February, which would be its highest level in the last four years, specifically since February 2006. However, this data will be published by the State Bureau of Statistics in the second half of the month.

On Monday, a report from the DZS on consumer prices in February is expected. In January, retail prices were 1.1 percent higher compared to the same month last year, which represents a weakening of inflation, considering that it was 1.9 percent in December.

Six macroeconomists in the Hina survey estimate that inflationary pressures continue to weaken, and that in February they amounted to between 0.6 and 1 percent compared to the same month last year. On average, they expect a decline in the annual inflation rate to 0.8 percent. This would be the first decline in inflation below 1 percent since September 2002. (H)