December 1, 2016 / 3:51 PM / 8 months ago

CEE MARKETS-Zloty, forint hit multi-month low despite upbeat PMIs

8 Min Read

* Zloty hits 5-month low, forint weakens to 4-month low vs
euro
    * Risks of S&P downgrade hurts Polish assets - dealer
    * Growth recovery next year is seen helping currencies -
poll
    * Czech PMI lower, Polish higher than seen, Hungary still
robust
    * Short-term GDP outlook not upbeat, global uncertainties
watched

 (Recasts with zloty, forint fall, rise of bond yields, Reuters
poll on currency exchange rates)
    By Sandor Peto
    BUDAPEST, Dec 1 (Reuters) - Poland's zloty and Hungary's
forint fell to their weakest levels for months on Thursday as
risk aversion gripped global markets and some investors
expressed concern that Standard & Poor's could downgrade Poland
at the end of the week.
    Central European government bond yields surged, tracking
euro zone and U.S. peers as crude prices rose after producers
agreed to cut oil output.
    That lifted expectations for a pick-up in inflation and
Federal Reserve interest rate hikes. Investors bought the dollar
instead of assets in emerging markets including Central Europe.
    The forint and the zloty, the region's
most liquid currencies, eased 0.4 percent against the euro by
1451 GMT. The forint touched a 4-month low at 314.17 and the
zloty a 5-month low at 4.472.
    In government bond markets, long-dated papers sold off and
the yield curves steepened, with the yield on 10-year bonds
rising 13 basis points to 3.77 percent in Warsaw and 11 basis
points to 3.49 percent in Budapest.
    The Polish yield is above Hungary even though Poland's
credit ratings are better.
    "The worry is that Poland will get downgraded tomorrow (in a
rating review by S&P)," one Budapest-based dealer said. "That
weakened the zloty, and indirectly the forint."
    Initially, the currencies modestly firmed as manufacturing
indices indicated continuing economic growth after a slowdown in
the third quarter.
    Poland's Purchasing Managers' Index was a
higher-than-expected 51.9 in November, while the Czech index at
52.2 was lower than expected but still indicated growth. The
50-point mark divides economic expansion from contraction.
    Hungary's index, calculated with a different methodology,
dropped slightly from October but remained robust at 56.6.
 
    "Looking from the GDP growth perspective, nothing really
changes for the better," said Adam Antoniak, senior economist at
Bank Pekao in Warsaw about the PMI figures.
    "(Growth) in the last quarter of this year will likely be a
little lower than in the third one, around 2 percent
(year-on-year)."
    Tax cuts, rising government spending and a pick-up in
European Union aid inflows could help economic growth accelerate
in the region next year, helping currencies.
    According to a Reuters poll of analysts, the zloty could
gain 3.7 percent by the end of November next year, from
Wednesday's close. 
    By then the Czech central bank could remove its cap which
keeps the crown weaker than 27 against the euro,
according to the forecasts of 18 out of 21 analysts.
    The median of those forecasts showed a 3 percent crown
firming by then to 26.27 versus the euro. 
    
           CEE MARKETS  SNAPSHOT   AT  1551 CET             
                        CURRENCIES                          
                        Latest    Previous  Daily     Change
                        bid       close     change    in
                                                      2016
 Czech                   27.0590   27.0575    -0.01%  -0.23%
 crown                                                
 Hungary                314.0500  312.8350    -0.39%   0.19%
 forint                                               
 Polish                   4.4710    4.4515    -0.44%  -4.76%
 zloty                                                
 Romanian                 4.5080    4.5064    -0.04%   0.24%
 leu                                                  
 Croatian                 7.5470    7.5385    -0.11%   1.22%
 kuna                                                 
 Serbian                122.9500  123.0900    +0.11%  -1.20%
 dinar                                                
 Note:     calculated   previous  close at  1800 CET        
 daily     from                                       
 change                                               
                        STOCKS                              
                        Latest    Previous  Daily     Change
                                  close     change    in
                                                      2016
 Prague                   886.43    881.22    +0.59%  -7.31%
 Budapest               30086.88  30014.04    +0.24%   +25.7
                                                          8%
 Warsaw                  1792.47   1798.22    -0.32%  -3.59%
 Buchares                6833.93   6789.50    +0.65%  -2.43%
 t                                                    
 Ljubljan                 687.44    690.72    -0.47%  -1.25%
 a                                                    
 Zagreb                  1986.93   1997.81    -0.54%   +17.6
                                                          0%
 Belgrade                 701.30    694.63    +0.96%   +8.88
                                                           %
 Sofia                    564.15    562.82    +0.24%   +22.4
                                                          0%
                        BONDS                               
                        Yield     Yield     Spread    Daily
                        (bid)     change    vs Bund   change
                                                      in
 Czech                                                spread
 Republic                                             
   2-year                 -0.752     0.024   -001bps   +3bps
   5-year                 -0.122    -0.018   +028bps   -5bps
                           0.585     0.043   +026bps   -1bps
 10-year                                              
 Poland                                                     
   2-year                  1.961     0.064   +270bps   +7bps
   5-year                  2.994      0.12   +340bps   +9bps
                           3.781     0.131   +345bps   +8bps
 10-year                                              
           FORWARD      RATE      AGREEMENT                 
                        3x6       6x9       9x12      3M
                                                      interb
                                                      ank
 Czech             <PR      0.29      0.28      0.27       0
 Rep       IBOR=>                                     
 Hungary           <BU       0.5      0.53      0.59    0.54
           BOR=>                                      
 Poland            <WI     1.765      1.79      1.82    1.73
           BOR=>                                      
 Note:     are for ask                                      
 FRA       prices                                     
 quotes                                               
 ***********************************************************
 ***
 
 (Additional reporting by Jason Hovet in Prague and Bartosz
Chmielewski in Warsaw; Editing by Catherine Evans/Hugh Lawson)

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