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CEE MARKETS 2-Currencies fall on concerns over Ukraine, low rates
August 6, 2014 / 10:05 AM / 3 years ago

CEE MARKETS 2-Currencies fall on concerns over Ukraine, low rates

(Adds new comments and prices, Russian food ban on Romania)
    By Sandor Peto
    BUDAPEST, Aug 6 (Reuters) - Hungary's forint and the Czech
crown hit multi-year lows against the euro on Wednesday as
Central European assets fell on concerns that Ukraine's crisis
could deepen and that yields in the region may be too low.
    "The market is very, very nervous, we have not seen anything
like that since January this year," a fixed income trader said
as Hungarian bond yields rose by about 15 basis points.
    Polish Prime Minister Donald Tusk said the threat of a
direct intervention by Russia's military in Ukraine has risen
over the last couple of days.  
    Hungarian bonds were also depressed because some investors
probably closed positions after changes in the short-term
investment instruments offered by the central bank, thinking
that a 5-month rally had pushed yields too low.
    The bank stopped issuing two-week bills as of Aug. 1 and now
allows local banks to deposit funds at the central bank for two
weeks, and earn interest, instead. The change prompted foreign
banks who held two-week bills to shift the money into government
debt because they have no access to the deposit accounts.  
    Central European assets have taken a beating in the past
week 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.
    Volatility jumped in the region's currency markets after
months of range-bound trading and falling government debt
yields.
    The forint touched its weakest levels against the
euro since January 2012, at 317.30. By 1211 GMT though it had
rebounded to 315.90, down 0.1 percent from Tuesday.
    "Record lows are only 8 forints off... I would not bet on a
move there yet but in this market I don't dare to make plans for
more than 1-2 days," one Budapest-based dealer said.
    The forint and the crown regained some ground 
early in the session helped by stronger-than-expected industrial
output data for Hungary and the Czech Republic for June.
    But later the crown fell beyond 28 against the euro, to its
weakest level since March 2009, before rebounding to 27.856,
still weaker by 0.2 percent from Tuesday.
    "Markets are being driven by geopolitical news flow and by
speculation on the U.S. Fed monetary policy outlook," said
Generali PPF Asset Management chief analyst Radomir Jac.
    The zloty hit its weakest level since April versus
the euro and was half a percent weaker from Tuesday, at 4.204.
The region's main equities indices declined, led by 1.7 percent
fall in Budapest. 
    The shares of Hungary's Magyar Telekom plunged 3.5
percent, tracking a fall in its parent company, Deutsche Telekom
 after Sprint reportedly dropped its bid to
acquire the German company's T-Mobile U.S. Inc unit.
    The forint could start to face fresh pressure as investors
assess the impact of a new law on banks, which forces them to
pay refunds on the grounds that they have overcharged borrowers,
Budapest-based brokerage Equilor said in a note.
    The European Central Bank warned in a legal opinion that the
law and a planned conversion of foreign currency loans into
forints later this year could hurt financial stability in
Hungary. 
    
    DEBT SELLOFF
    The yield on Hungary's 3-year government bonds rose 18 basis
points, to retreat 5 basis points later to 3.8 percent.
    "The ECB opinion, Ukraine and everything else is there, too,
but the main factor is the selloff in the government debt
market," a Budapest-based currency dealer said. 
    The Czech crown had largely held around 27.400 to the euro
in recent months but the central bank's indications last month
that it favoured keeping the currency weak into 2016 to maintain
relaxed monetary policy has helped it weaken along with other
emerging market assets since last week.
    Romania's central bank cut interest rates on Monday,
surprising some investors, and rate cut expectations have also
strengthened in Poland in recent months after economic data
suggested economic recovery is slowing.
    New European Union sanctions on Russia last month have 
increased that risk and Moscow has also imposed a ban on imports
from Poland, a staunch supporter of tougher EU measures against
Russia. It extended the ban to Romania on Wednesday.
    The move is largely symbolic as Russia accounts for only 3
percent of Romania's exports, and the head of the association of
cattle farmers said Romania did not export a gramme of meat to
Russia in the past decade.  
    The leu eased 0.1 percent to 4.443.  
 *                                                            *
 **************** CEE MARKETS SNAPSHOT AT 1411 CET ************ 
 ************************* CURRENCIES *************************
                            Latest  Previous   Daily   Change  
                            bid     close      change  in 2014 
 Czech crown                 27.856    27.794   -0.22%  -1.88% 
 Hungary forint             315.900   315.600   -0.09%  -5.99% 
 Polish zloty                 4.204     4.185   -0.46%  -1.29% 
 Romanian leu                 4.443     4.437   -0.13%  +0.39% 
 Croatian kuna                7.647     7.644   -0.04%  -0.38% 
 Serbian dinar              116.720   116.780   +0.05%  -1.90% 
 Note: daily change calculated from previous close at 1800 CET 
 **************************** STOCKS **************************
                            Latest   Previous  Daily   Change  
                                     close     change  in 2014 
 Prague                       948.69   953.80   -0.38%  -3.87% 
 Budapest                   17348.39 17651.90   -1.72%  -5.38% 
 Warsaw                      2350.17  2369.33   -0.81%  -2.25% 
 Bucharest                   6960.29  6980.25   -0.29%  +7.45% 
 Ljubljana                    798.34   801.67   -0.42% +24.55% 
 Zagreb                      1804.33  1811.23   -0.38%  +1.35% 
 Belgrade                     596.34   601.89   -0.92%  +8.11% 
 Sofia                        540.78   542.14   -0.25% +10.05% 
 ***************************** BONDS **************************
                        Yield    Yield    Spread     Daily     
                        (bid)    change   vs Bund    change in 
 Czech Republic                                      spread    
   2-year                0.244    +0.004   +022bps    +1bps    
   5-year                0.607    -0.036   +033bps    +1bps    
  10-year                1.487    -0.022   +038bps    +5bps    
 Hungary                                                       
   3-year                3.670    +0.070   +364bps   +10bps    
   5-year                4.030    +0.000   +375bps    +5bps    
  10-year                5.090    +0.250   +398bps   +32bps    
 Poland 
   2-year                2.446    -0.020   +243bps    -1bps  
   5-year                3.022    -0.007   +274bps    +4bps  
  10-year                3.477    +0.008   +237bps    +8bps  
 ******************* FORWARD RATE AGREEMENTS ******************
                            3x6     6x9    9x12 3M interbank
 Czech Rep                    0.360   0.380  0.385   0.35 
 Hungary                      2.400   2.610  2.730   2.15 
 Poland                       2.400   2.340  2.335   2.67 
 Note: FRA quotes are for ask prices 
 **************************************************************
 
 (Reporting by Jason Hovet in Prague/Marcin Goettig and Michal
Janusz in Warsaw; Editing by Susan Fenton/Ruth Pitchford)

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