CEE MARKETS 2-Forint bucks firmer trend, anticipating another rate cut

Mon Jan 13, 2014 11:46am EST

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(Recasts with equities rise, leu surge)
    * Forint eases, Hungarian bonds firm on rate cut expectation
    * Leu rebounds after last week's fall on monetary easing

    By Sandor Peto
    BUDAPEST, Jan 13 (Reuters) - The forint eased on Monday as
traders anticipated further Hungarian interest rate cuts,
bucking a rise in most Central European assets after investors
reassessed the likely pace of change in U.S. monetary policy.
    Most of the region's equity markets rose after Friday's weak
U.S. jobs figures, which prompted bets they would make the
Federal Reserve more cautious about winding down the monetary
stimulus that many investors have diverted into emerging
markets.
    The forint shrugged off a bomb blast at a Budapest
bank branch which dealers said was unlikely to herald more
violence. The rising cost of once-popular foreign currency loans
has prompted sporadic protests over recent years.
 
    The forint eased a shade against the euro, anticipating the
central bank will cut its 3 percent base rate still
further, after reducing it from 7 percent in 2012.
    These expectations helped Hungarian government bonds
slightly extend last week's strong gains, with the 3-year
benchmark yield continuing its record-low-breaking falls. It
shed 2 basis points to 3.72 percent.
    "There is speculation about whether the central bank will
cut rates by 20, 15 or only 10 basis points," one Budapest-based
fixed income trader said. "I would say a bigger cut is more
likely as the international market sentiment is supportive."
    
    EQUITIES SURGE
    As risk appetite grows, analysts say the currency of Poland,
the region's most robust economy, has the best prospects.
    Credit Agricole said in a note that Poland's improving
growth outlook and good trade balance with other European Union
members could keep the zloty immune to expectations for a rise
in interest rates in developed markets.
    The zloty firmed 0.3 percent against the euro by
1520 GMT. The main equity indices of Warsaw and Budapest
 rose 1.4 percent, while Prague gained 1.9 percent.
    Polish government bonds firmed slightly.
    "One can see willingness to buy, as some shares are very
beaten down," DM Millennium trader Jaroslaw Oldakowski said.
"The banking sector looks good, and so do energy and oil
stocks."
    Czech utility CEZ rose 3.7 percent, its biggest
intraday gain since November.    
    "It is up in line with other CEE utilities. There is better
sentiment in the region," a Prague trader said.
    In Hungary, drug maker Richter shares rose 3.5
percent. The stock has firmed more than 10 percent since the
company told Reuters last week that it planned to expand into
four more countries in Latin America. 
    The leu gained half a percent against the euro to
4.521, regaining almost all the ground which it lost after the
Romanian central bank cut its main interest rate to a record low
of 3.75 percent last week and in a surprise move lowered banks'
minimum reserve requirements to help economic recovery.
    "This is a correction after last week's falls, also helped
by last session's U.S. data," said one trader in Bucharest. "But
I suspect that it will struggle a little to firm beyond 4.52 per
euro."
    The dinar stabilised at around 115.2 against the
euro after two days of euro selling by the central bank which
keeps the currency in closely managed ranges. 
                      CEE MARKETS SNAPSHOT AT 1620 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.346    27.403  +0.21%  -0.05%
 Hungarian forint           298.490   298.330   -0.05%  -0.51%
 Polish zloty                 4.148     4.161   +0.32% +0.04%
 Romanian leu                 4.521     4.541  +0.45%   -1.34%
 Croatian kuna                7.627     7.619    -0.10%  -0.12%
 Serbian dinar              115.240   115.150    -0.08%   -0.64%
 Note: daily change calculated from previous close at 1700 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      1025.43    1009.36  +1.59% +3.90%
 Budapest                  19338.56  19101.72   +1.24%  +5.48%
 Warsaw                     2361.65   2327.89   +1.45%  -1.78%
 Bucharest                  6572.20   6599.76   -0.42%  +1.46%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.132    -0.351    -6bps     -35bps
   5-year                0.982     -0.012   +18bps     +1bps
  10-year                2.521    -0.029   +70bps     0bps
 Hungary
   3-year                3.720     -0.020   +340bps    -1bps
   5-year                4.400     -0.020   +360bps   +1bps
  10-year                5.430    -0.080    +361bps    -6bps
 Poland
   2-year                2.920   +0.010    +273bps   +1bps
   5-year                3.550    -0.020    +275bps   +1bps
  10-year                5.430   -0.030    +361bps    -1bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.400   0.470  0.500   0.38
 Hungary                      2.760   2.780  2.900   2.99
 Poland                       2.720   2.730  2.870   2.7
 Note: FRA quotes are for ask prices
 **************************************************************
 
 (Reporting by Reuters bureaus; Writing by Sandor Peto; Editing
by Alison Williams/Ruth Pitchford)
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