Views Article – Sharenet Wealth

Europe, Forex

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 Thursday. All three major stock indices fell in emerging central Europe, following a market dip in the U.S. and other core markets. CEE SNAPSHOT AT MARKETS 1009 CET CURRENCI ES Latest Previous Daily Change bid close change in 2019 Czech 25.7100 25.6850 -0.10% -0.01% crown Hungary 326.3000 325.7400 -0.17% -1.60% forint Polish 4.2934 4.2840 -0.22% -0.09% zloty Romanian 4.7335 4.7315 -0.04% -1.68% leu Croatian 7.3800 7.3823 +0.03% +0.41% kuna Serbian 117.5700 117.6900 +0.10% +0.62% dinar Note: calculated from 1800 CET daily change Latest Previous Daily Change close change in 2019 Prague 1053.56 1056.690 -0.30% +6.79% 0 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% BONDS Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republic 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 R> Poland 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 R> FORWARD RATE AGREEMEN T 3×6 6×9 9×12 3M interban k Czech Rep < 2.13 2.03 1.92 2.16 PRIBOR=> Hungary < 0.34 0.42 0.48 0.26 BUBOR=> Poland < 1.74 1.73 1.74 1.72 WIBOR=> Note: FRA are for ask prices quotes ************************************************** ************ (Reporting by Marton Dunai Editing by Raissa Kasolowsky)


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