CEE MARKETS 1-Currencies extend losses on Ukraine, Hungarian bank pressures

Thu Aug 7, 2014 4:22am EDT

By Krisztina Than
    BUDAPEST, Aug 7 (Reuters) - Central European currencies
extended losses on Thursday morning on worries that Ukraine's
crisis could deepen, with concerns over Hungarian legislation
that will hit the bank sector this year also weighing on
sentiment.
    Central European assets have also taken a beating in the
past days on rising expectations that the U.S. Federal Reserve
may be ready to raise interest rates earlier than expected,
making emerging market assets less attractive. 
    These factors added up to boost volatility in the region's
currency markets. They also pushed up government bond yields in
Hungary, where the central bank has carried out an aggressive
easing campaign in the past 2 years, slashing rates from 7
percent to 2.1 percent. 
    "The forint is fairly sensitive to swings in investor
sentiment and we saw some big investment banks selling forint
and buying euros yesterday," a dealer in Budapest said.
    "Since the benchmark interest rate has been slashed and the
forex loans legislation (was announced) and forint has become
more vulnerable," he said, adding that this weakness could
continue in the short term, but the forint could regain ground
later this year once the storm settles. 
    Investors are still assessing the impacts of a new law on
Hungary's mostly foreign-owned banks, which forces them to pay
refunds on the grounds that they have overcharged borrowers.
This could cost as much as 900 billion forints to the bank
sector, according to the central bank's estimates.
    Belgian financial group KBC's said earlier on
Thursday that its profit fell by less than expected in the
second quarter as higher net interest income and increased loans
and deposits partly made up for a hit in Hungary.
    But KBC also said that a 231 million euro provision to cover
the consequences of the new Hungarian act on retail loans had
weighed on results in the April-June period. 
    At 0710 GMT the forint, which on Wednesday touched
its weakest levels against the euro since January 2012 at
317.30, was down 0.2 percent versus the euro at 316.55.
    The Polish zloty was also trading 0.2 percent
lower, similarly the Czech crown.
    "If nervousness on the global markets (caused by
geopolitical situation in Ukraine) remains, we can see the zloty
heading toward 4.25 versus the euro," analysts of Pekao SA said
in a note.
    Russia has banned most fruit and vegetable imports from
Poland. The Polish economy, the largest in central Europe, could
take the biggest hit from an escalation of the conflict between
Ukraine and Russia, if that caused sanctions to be tightened.
    Even the Czech crown, considered as a safe haven currency in
the region, could not escape the impact from rising geopolitical
risks and fell beyond 28 against the euro on Wednesday, to its
weakest level since March 2009.  
    After a brief rebound, the crown again eased on Thursday
morning in tandem with the region.
    "Should Russia itself impose any sanctions aimed at
weakening the EU economy this could cause the Czech central bank
to ease its monetary policy," Commerzbank said in a note.
    The Czech central bank, which has already cut its main rate
to a technical zero, has pledged to keep the crown from firming
beyond around 27 to the euro but letting it float freely on the
weak side of that level.
    The region's equities mostly eased. Budapest led the fall
with its main stock index shedding one percent by 0803
GMT. 
 *                                                            *
 **************** CEE MARKETS SNAPSHOT AT 0910 CET ************ 
 ************************* CURRENCIES *************************
                            Latest  Previous   Daily   Change  
                            bid     close      change  in 2014 
 Czech crown                 27.850    27.785   -0.23%  -1.86% 
 Hungary forint             316.550   315.820   -0.23%  -6.19% 
 Polish zloty                 4.207     4.197   -0.24%  -1.36% 
 Romanian leu                 4.441     4.441   -0.01%  +0.43% 
 Croatian kuna                7.653     7.647   -0.07%  -0.45% 
 Serbian dinar              116.910   116.975   +0.06%  -2.06% 
 Note: daily change calculated from previous close at 1800 CET 
 **************************** STOCKS **************************
                            Latest   Previous  Daily   Change  
                                     close     change  in 2014 
 Prague                       954.14   949.62   +0.48%  -3.32% 
 Budapest                   17320.29 17346.55   -0.15%  -5.53% 
 Warsaw                      2360.85  2362.27   -0.06%  -1.81% 
 Bucharest                   6965.13  6964.16   +0.01%  +7.52% 
 Sofia                        539.86   539.86   +0.00% +09.86% 
 ***************************** BONDS **************************
                        Yield    Yield    Spread     Daily     
                        (bid)    change   vs Bund    change in 
 Czech Republic                                      spread    
   2-year                0.362    +0.000   +036bps    +1bps    
   5-year                0.589    -0.028   +032bps    -2bps    
  10-year                1.475    -0.001   +039bps    +2bps    
 Hungary                                                       
   3-year                3.900    +0.030   +389bps    +4bps    
   5-year                4.270    +0.000   +401bps    +1bps    
  10-year                5.280    +0.178   +420bps   +20bps    
 ******************* FORWARD RATE AGREEMENTS ******************
                            3x6     6x9    9x12 3M interbank
 Czech Rep                    0.365   0.385  0.385   0.35 
 Hungary                      2.390   2.530  2.720   2.15 
 Poland                       2.355   2.300  2.330   2.67 
 Note: FRA quotes are for ask prices 
 **************************************************************
 
 (Reporting by Jason Hovet in Prague/Michal Janusz in Warsaw;
Editing by Toby Chopra)
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