August 1, 2019 / 8:48 AM / 3 months ago

CEE MARKETS-Assets lower as Fed makes waves, economic sentiment worsening

    By Jason Hovet and Marton Dunai
    PRAGUE/BUDAPEST, Aug 1 (Reuters) - Emerging European assets
dipped on Thursday after the U.S. Federal Reserve cut rates for
the first time in more than a decade and local economies showed
signs of a worsening outlook, leaving investors with several new
factors to weigh.
    Wall Street turned negative on Wednesday after Federal
Reserve Chairman Jerome Powell characterised the U.S. central
bank's first rate cut since 2008 as a "mid-cycle adjustment to
policy," suggesting the move was not the start of a lengthy
series of rate cuts.
    Emerging European assets tend to be sensitive to risk
appetite, weakening when global factors spook investors.
    On Thursday morning the Czech crown traded around an 8-week
low before a central bank meeting in Prague, where analysts
predicted rates would stay unchanged at 2% as the bank balances
global uncertainties with a still solid economy. 
    There will be a new outlook, with the attention focused
mostly on the bank's new assumptions for the euro/crown cross.

    "We expect the voting board to cite the global risks again
as a reason to keep the 'wait and see' mode today. Still, it
will be worth (to) watch where the new forecast sees the FX rate
prediction," Komercni Banka rates trader Dalimil Vyskovsky said.
    Czech forward rate agreements point to market expectations
of interest rate cuts in the next year although analysts expect
the bank will signal rate stability ahead for now.
    "We expect the CNB has no reason to support exaggerated
market expectations and will stay with its declaration of rate
stability," CSOB said.
    Manufacturing business sentiment fell around the region,
signalling a waning confidence despite the region's resilience
to economic challenges in recent years. 
    Czech sentiment fell to a 10-year low in July, sharply below
analysts' forecast, the Markit Purchasing Managers' Index (PMI)
showed on Thursday.
    Hungary's PMI also continued to fall last month, staying
just below the threshold separating expansion from contraction,
while a contraction in Polish factory activity accelerated.
    Poland's central bank is flexible when reacting to shocks
and should be so, as it has to take into account the reasons for
the shocks and their durability, The National Bank of Poland's
governor said in an article for the Rzeczpospolita daily on
    All three major stock indices fell in emerging central
Europe, following a market dip in the U.S. and other core

            CEE        SNAPSHOT   AT                         
            MARKETS              1009 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2019
 Czech                  25.7100   25.6850    -0.10%    -0.01%
 Hungary               326.3000  325.7400    -0.17%    -1.60%
 Polish                  4.2934    4.2840    -0.22%    -0.09%
 Romanian                4.7335    4.7315    -0.04%    -1.68%
 Croatian                7.3800    7.3823    +0.03%    +0.41%
 Serbian               117.5700  117.6900    +0.10%    +0.62%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2019
 Prague                 1053.56  1056.690    -0.30%    +6.79%
 Budapest              40645.90  40767.60    -0.30%    +3.85%
 Warsaw                 2272.47   2277.37    -0.22%    -0.18%
 Bucharest              9194.65   9204.15    -0.10%   +24.53%
 Ljubljana               869.54    870.59    -0.12%    +8.12%
 Zagreb                 1911.29   1911.58    -0.02%    +9.29%
 Belgrade   <.BELEX15    743.92    747.49    -0.48%    -2.33%
 Sofia                   581.72    580.68    +0.18%    -2.14%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    1.1580    0.0850   +193bps     +7bps
   5-year   <CZ5YT=RR    1.1080    0.0340   +184bps     +2bps
   10-year  <CZ10YT=R    1.2240    0.0000   +165bps     -1bps
   2-year   <PL2YT=RR    1.5580    0.0000   +233bps     -1bps
   5-year   <PL5YT=RR    1.9200    0.0310   +265bps     +2bps
   10-year  <PL10YT=R    2.2110    0.0320   +264bps     +2bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      2.13      2.03      1.92      2.16
 Hungary            <      0.34      0.42      0.48      0.26
 Poland             <      1.74      1.73      1.74      1.72
 Note: FRA  are for ask prices                               
 (Reporting by Marton Dunai
Editing by Raissa Kasolowsky)
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