July 1, 2019 / 9:21 AM / 4 months ago

CEE MARKETS-Assets shrug off weaker PMI data across the region

    By Marton Dunai and Robert Muller
    BUDAPEST/PRAGUE, July 1 (Reuters) - Emerging European assets
mostly shrugged off worsening business sentiment readings and
moved sideways, in a market that focused on the ramifications of
a global trade war for core markets and kept investors guessing
about emerging-market assets.
    While large central banks around the world try to maintain
growth in the face of hostile trade relations, eastern Europe's
economic outlook for now has provided a steadier hand for
policymakers - but they keep their eyes peeled on a spillover of
growth woes.
    "We expect (large) central banks to continue to try and
offset the risks of a trade-war induced recession," Citibank
said in a note to clients. "The ECB in particular looks ready
for 'whatever it takes' part 2."
    Growth and inflation have crept higher in several eastern
European economies, and the easing bias in core markets has
allowed its central banks to avoid rate hikes, analysts have
said. Polish, Czech and Hungarian central banks
will all keep rates flat all year, polls suggest.
    But in the longer term, the trade war's effects are expected
to seep into the region, posing a monetary policy challenge.
    "The current global environment remains challenging and will
also impact the Czech economy sooner or later," said Jakub
Seidler, ING chief economist for Czech Republic. "We see the
(central bank) on hold... (in) a wait-and-see approach."
    Business sentiment surveys, which showed marked contraction
in Czech and Polish business sectors and a slowing expansion in
Hungary, did not faze markets just yet as growth projections
there remained rosy.
    Polish PMI was lower than expected, below the 50-point mark
separating expansion from contraction for the eighth month in a
row. Economists were surprised that the fall was due to domestic
demand, not export. 
    "Worryingly, the declines in output and new business
gathered pace, although the hit on the headline PMI was tempered
somewhat by the first increase in employment in five months,"
said Trevor Balchin, director at IHS Markit.
    Czech PMI fell to a near 10-year low in June due to a
faster-than-expected decrease in production and a fall in new
business, Markit said on Monday.
    "The rate of contraction quicken(ed) to the fastest since
December 2012. The decline was linked to weaker foreign and
domestic client demand," it said.
    "The contraction was marked overall as firms noted that
weaker demand and unplanned shutdowns in the automotive sector
had weighed on new order volumes. New business from abroad fell
at the fastest rate for a decade."
    Hungary's seasonally adjusted PMI fell to 54.4 in June from
57.9 in May but remained above the 50-point mark separating
growth in manufacturing from contraction.

            CEE        SNAPSHOT   AT                         
            MARKETS              1013 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2019
 Czech                  25.4180   25.4460    +0.11%    +1.14%
 Hungary               322.7600  322.8500    +0.03%    -0.52%
 Polish                  4.2420    4.2472    +0.12%    +1.12%
 Romanian                4.7314    4.7285    -0.06%    -1.64%
 Croatian                7.3980    7.3981    +0.00%    +0.16%
 Serbian               117.7500  117.9000    +0.13%    +0.47%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2019
 Prague                 1041.71  1041.730    -0.00%    +5.59%
 Budapest              40637.81  40279.31    +0.89%    +3.83%
 Warsaw                 2350.81   2327.67    +0.99%    +3.26%
 Bucharest              8803.92   8814.27    -0.12%   +19.23%
 Ljubljana               879.84    881.59    -0.20%    +9.40%
 Zagreb                 1882.57   1883.11    -0.03%    +7.65%
 Belgrade   <.BELEX15    730.12    731.62    -0.21%    -4.14%
 Sofia                   587.40    587.81    -0.07%    -1.19%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    1.4830    0.0240   +222bps     +2bps
   5-year   <CZ5YT=RR    1.3490    0.0570   +201bps     +6bps
   10-year  <CZ10YT=R    1.5440    0.0000   +187bps     +0bps
   2-year   <PL2YT=RR    1.6220   -0.0010   +236bps     +0bps
   5-year   <PL5YT=RR    1.9650   -0.0100   +263bps     -1bps
   10-year  <PL10YT=R    2.3940    0.0000   +272bps     +0bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      2.18      2.12      2.02      2.17
 Hungary            <      0.34      0.45      0.56      0.25
 Poland             <      1.74      1.73      1.72      1.72
 Note: FRA  are for ask prices                               
 (Reporting by Marton Dunai)
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