CEE MARKETS 2-Weak PMIs signal slowdown, may trigger Polish rate cut

Petrol dd Ljubljana

01/09/2014 13:13

* PMIs drop in Hungary, Poland, Czech Republic as economies 
slow 
    * Chance of Polish rate cut on Wednesday, some analysts say 
    * Slower growth means central banks likely to keep policy 
loose 
    * Currencies range-bound, news from Ukraine in focus 
 
    By Krisztina Than 
    BUDAPEST, Sept 1 (Reuters) - Central European currencies 
were little changed on Monday after the latest PMI reports 
signalled the region's economies were slowing, which compounded 
the uncertainty over the conflict in neighbouring Ukraine. 
    With central Europe's economic recovery threatened by weaker 
German growth and trade sanctions against Russia, the region's 
central banks are likely to maintain a loose monetary stance for 
longer or - in the case of Poland - cut interest rates further 
to help growth, analysts said. 
    Polish central bankers meet later this week to decide on 
interest rates. Some economists said the chance of a rate cut 
has now increased in the wake of Monday's weak PMI readings. 
    "The scenario of further deterioration of sentiment in 
Polish manufacturing is highly probable, supported by 
unfavourable business climate abroad ... as well as possible 
escalation of the Russian-Ukrainian conflict," Credit Agricole 
said in a note. 
    "Thus, today's PMIs signal a substantial downward risk to 
our forecast of Q3 2014 GDP growth (3.6 percent YoY) and 
strongly support our scenario of an interest rate cut by the NPB 
at the meeting this week."  
    In a Reuters poll on Friday, most analysts projected Polish 
rates would remain at 2.5 percent on Wednesday but be cut by 25 
basis points before the end of 2014. ID:nL5N0QZ3QX  
    Hungary's central bank has already said it ended its easing 
cycle and would keep its main rate  NBHI  at a record low 2.1 
percent to boost the economy.  
    The Czech bank has already cut its benchmark rate to a 
technical zero. It said in July that it would keep the crown 
weak into 2016 to help the economy.     
    "In Hungary we expect a prolonged period of low rates, in 
Poland we see chances of 50bps of policy easing in 
October/November, while Czech authorities may be tempted to 
postpone the exit from its FX policies even further," said 
Eszter Gargyan, an analyst at Citigroup. 
    PMIs in Poland, Hungary, and the Czech Republic all dropped 
August from July, signalling that the economic recovery in the 
region is slowing. That followed the trend in Germany, a key 
trading partner for eastern Europe. ID:nL5N0R21P1  
    Data showed on Monday that Germany's manufacturing sector 
expanded at the slowest rate in 11 months in August. Both new 
orders and output growth weakened. ID:nL9N0O502C  
    Western powers may impose more trade sanctions on Russia, 
and some analysts say that could further undermine the economies 
of the region, keeping Central European assets under pressure. 
But the timing of any new trade sanctions remains 
uncertain. ID:nL5N0R10FR  
 
    UKRAINE CRISIS, ECB IN FOCUS 
    The region's largest economy, Poland, is the most heavily 
exposed to the Russia-Ukraine conflict, which will continue to 
influence markets across the region in the weeks to come, market 
players said. 
    This week, markets will also watch the European Central 
Bank's meeting on Thursday for any signals on the start of a 
quantitative easing programme. 
    The ECB will probably begin a quantitative easing programme 
by March to prevent deflation and revive economic growth in the 
euro zone, according to a Reuters poll. But it is not expected 
to change policy on Thursday. ID:nL3N0QY4DR  
    On Monday, with markets closed in the United States, trading 
was slow in central European currency and bond markets. At 1047 
GMT, the Polish zloty  EURPLN=  was flat versus the euro, while 
the Hungarian forint  EURHUF=  and the Czech crown  EURCZK=  
were both up 0.1 percent. Hungarian yields edged a couple of 
basis points lower among some buying interest, a trader said. 
    "The situation in Ukraine remains the main factor for the 
zloty," said Marek Cherubin, a currency dealer at BPH bank in 
Warsaw. "I think that (Polish Prime Minister Donald) Tusk's 
election as EU chief will have a neutral or slightly positive 
impact on the currency." 
    Tusk, who has been Polish prime minister since 2007, will 
succeed Belgium's Herman Van Rompuy as president of the European 
Council, EU leaders decided over the weekend.  
                  CEE MARKETS SNAPSHOT AT 1247 CET 
 ************************** CURRENCIES ************************ 
                             Latest  Previous   Daily   Change 
                             bid     close      change  in 2014 
 Czech crown      EURCZK=    27.730    27.771   +0.15%  -1.44% 
 Hungarian forint EURHUF=   314.650   314.970   +0.10%  -5.62% 
 Polish zloty     EURPLN=     4.210     4.213   +0.05%   -1.44% 
 Romanian leu     EURRON=     4.398     4.399   +0.01%  +1.41% 
 Croatian kuna    EURHRK=     7.613     7.620  +0.10%  +0.07% 
 Serbian dinar    EURRSD=   117.800   117.855   +0.05%  -2.80% 
 Note: daily change calculated from previous close at 1800 CET 
 **************************** STOCKS ************************** 
                             Latest  Previous   Daily   Change 
                                     close      change  in 2014 
 Prague           .PX        982.22   980.01   +0.23%  -0.48% 
 Budapest         .BUX       17837.22 17779.76 +0.32%   -2.71% 
 Warsaw           .WIG20     2433.06  2416.97   +0.67% +1.19% 
 Bucharest        .BETI      7112.98  7145.71   -0.46%  +9.80% 
 Ljubljana        .SBITOP    811.87   819.02    -0.87%  +26.66% 
 Zagreb           .CRBEX     1846.92  1850.73    -0.21%  +3.74% 
 Belgrade         .BELEX15   632.45   629.89   +0.41%  +14.66% 
 Sofia            .SOFIX     549.71   549.39   +0.06%  +11.87% 
 ***************************** BONDS ************************** 
                         Yield    Yield    Spread    Daily 
                         (bid)    change   vs Bund   change in 
 Czech Republic                                      spread 
   2-year    CZ2YT=RR    0.183    0.000   +22bps   +1bps 
   5-year    CZ5YT=RR    0.465    -0.002   +30bps   +1bps 
  10-year    CZ10YT=RR   1.215     -0.001   +33bps     0bps 
 Hungary 
   3-year    HU3YT=RR    3.300    +0.050   +333bps   +6bps 
   5-year    HU5YT=RR    3.620     0.000   +346bps   +1bps 
  10-year    HU10YT=RR   4.550    +0.037   +366bps   +4bps 
 Poland 
   2-year    PL2YT=RR    2.190   0.000    +223bps  +1bps 
   5-year    PL5YT=RR    2.519   -0.003    +236bps  +1bps 
  10-year    PL10YT=RR   3.083  +0.012    +220bps  +1bps 
 ******************* FORWARD RATE AGREEMENTS ****************** 
                               3x6     6x9    9x12  3M interbank 
 Czech Rep  CZKFRA  PRIBOR=   0.330   0.330  0.330   0.35 
 Hungary    HUFFRA  BUBOR=    2.250   2.300  2.400   2.14 
 Poland     PLNFRA  WIBOR=    2.130   2.020  2.020   2.58 
 Note: FRA quotes are for ask prices 
 ************************************************************** 
  
 (Reporting by Reuters buros; Editing by Gareth Jones, Larry 
King) 
 ((krisztina.than@thomsonreuters.com; +36 1 327 4745; Reuters 
Messaging: krisztina.than.thomsonreuters.com@reuters.net)) 
  
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