July 2, 2018 / 10:34 AM / 9 months ago

CEE MARKETS-German political crisis weighs, forint at record low

    * German coalition crisis, global risk aversion depress
    * Forint at record low, Hungary's 10-year yield at 16-month
    * Zloty near weakest level since 2016 on strong PMI, CPI
    * Market mulls effect of possible Hungary central bank

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, July 2 (Reuters) - The forint hit a record
low against the euro on Monday as fears  of a growth slowdown in
emerging economies as trade war fears rumbled on, and Germany's
coalition crisis prompted yet more selling of Central European
    Germany's ruling coalition got to the brink of collapse over
the weekend amid a conflict over migration between Chancellor
Angela Merkel and the Bavarian CSU party.
    The conflict weakens the euro, fuels capital flows into the
dollar, also weighing on Central European assets, traders said,
with Poland and Hungary under particular pressure.
    Hungary's 10-year government bond yield, trading at about
3.63 percent, was the highest since March last year and was
approaching three-year highs.
    Some major emerging economies including Turkey and Russia
released disappointing PMI manufacturing activity data on
Monday, Capital Economics analyst Liam Carson said in a note.
    "The (PMI) survey data from Hungary and the Czech Republic
were weak," he said, noting that Poland's June index, the
highest showing in five months, was more upbeat.
    Poland's 54.2 PMI figure was followed by a report showing
that inflation fell to 1.9 percent in June from 2 percent in
May, just below analysts' forecasts and were seen as unlikely to
affect central bank forecasts that interest rates will stay low
for years.
    The zloty tested its weakest levels since 2016
against the euro and at 0902 GMT was down 0.3 percent at 4.3885.
    Regional assets have been under pressure for two months due
to capital flows into the dollar and a U.S. interest rate rise.
    The Czech central bank raised interest rates last month to
fight inflation by boosting the crown, and the
Hungarian central bank (NBH) toned down its dovish rhetoric.
    Their moves, however, did not stop currencies sliding. Some
investors were anticipating possible tightening as a result. 
    The forint and the crown traded near
psychologically important levels at 330 and 26 versus the euro,
respectively, with the former near record lows and the Czech
unit near nine-month lows. 
    Hungarian traders were split over whether the central bank
was willing to reverse its long-standing loose policy. 
    "I do not see the benefits in keeping short-term rates low
for an additional four or five months, while the long end of the
curve is plagued by uncertainty," one Budapest based fixed
income trader said.
    "There are lots of open questions, including where and when
inflation will peak," he said.
    One currency dealer said "the forint may go to 335 or even
340 as long as interest rates are not increased", noting however
that the currency's weakness was unlikely to push the NBH into a
rate hike.
            CEE       SNAPSHOT   AT                         
            MARKETS             1102 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9880   26.0020    +0.05%    -1.72%
 crown      >                                       
 Hungary    <EURHUF=  329.9900  329.7500    -0.07%    -5.78%
 forint     >                                       
 Polish     <EURPLN=    4.3885    4.3754    -0.30%    -4.83%
 zloty      >                                       
 Romanian   <EURRON=    4.6645    4.6655    +0.02%    +0.33%
 leu        >                                       
 Croatian   <EURHRK=    7.3850    7.3845    -0.01%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  117.8700  118.0000    +0.11%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1065.85  1064.200    +0.16%    -1.14%
 Budapest             35801.25  36127.71    -0.90%    -9.08%
 Warsaw                2124.07   2135.47    -0.53%   -13.70%
 Bucharest             8054.06   8087.01    -0.41%    +3.87%
 Ljubljana  <.SBITOP    879.09    886.71    -0.86%    +9.02%
 Zagreb                1816.13   1816.49    -0.02%    -1.45%
 Belgrade   <.BELEX1    734.44    733.37    +0.15%    -3.34%
 Sofia                  634.94    634.26    +0.11%    -6.28%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.1430    0.0010   +183bps     +1bps
   5-year   <CZ5YT=R    1.5880   -0.0280   +188bps     -3bps
   10-year  <CZ10YT=    2.1620   -0.0490   +185bps     -5bps
   2-year   <PL2YT=R    1.6480    0.0170   +233bps     +2bps
   5-year   <PL5YT=R    2.5490    0.0080   +284bps     +1bps
   10-year  <PL10YT=    3.2310    0.0190   +292bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.29      1.43      1.16
 Hungary                  0.72      0.94      1.18      0.26
 Poland                   1.75      1.78      1.83      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Louise Ireland)
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