Central European assets gained across the board after stocks rebounded in Shanghai and on the Wall Street. The regionʼs assets were hit early in the week by worries that a slowdown in China will hurt the global economy.
Market volatility has since subsided, and Hungarian government bonds also steadied, although traders warned that “this is a temporary respite, the China story is not over.”
Hungaryʼs forint is stronger against the euro on Thursday, but it may not last, while it again turned around to re-start easing against the dollar. Raiffeisen Bank attributes this weekʼs forint weakness to “significant” capital flight, and noted on Thursday that the amount of forint-denominated government bonds in foreign hands has dropped to a three-year record low, while longer-dated bond yields have risen by some 20bps, and Hungaryʼs five-year credit default swap spreads have increased about 16bps. These developments could signal the start of a longer-term trend of capital flight, and therefore of forint weakness, it said.
But in the near term, Rabobank said it expects the Polish zloty, the Hungarian forint and the South African rand to firm as European stocks are in a recovery mode and the euro is falling sharply from Mondayʼs high at 1.1714 to the dollar.
In a note also on Thursday, Bank of America Merrill Lynch said that it remains neutral across most EEMEA (Eastern Europe, Middle East and Africa) curves, with the exception of Hungary, where it favors a long position in the 5.50% June 2025 bond, forex hedged.
The forint traded at 280.11 to the dollar, down from 279.44 in final quotes on Wednesday. On Thursday, it moved between 277.31 and 280.62, a one-week low, after a nearly four-month high at 268.89 Monday intraday.
It was quoted at 291.05 to the Swiss franc, up from 292.64 late Wednesday. Its range on Thursday was 290.75 to 293.48, a one-week low, after a one-month low at 294.64 Wednesday intraday, and a six-day high 286.50 Tuesday intraday. Since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.
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