BUX further down on global woes, deflation

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The Budapest Stock Exchange's main BUX index finished down 0.46% at 16,066.13 Wednesday, after falling 0.11% Tuesday. It is down 3.41% from year-end, after losing 10.40% last year.  The Budapest parquet fell for a fourth consecutive day as the World Bank's global growth forecast cut weighed on Central European currencies and equities, while Wednesday's data showed deflation deepened in Hungary, and a hold decision of Poland's central bank dented expectations for rate cuts in the region.

While some analysts stick to their opinion that deflation should trigger a renewal of rate cuts by the National Bank of Hungary (MNB), others reckon that the central bank would not welcome excess forint volatility given the heavy exposure of government debt to foreign funding. Deflation might, at the most, postpone the start of rate hikes to some time next year, they say.

Underlying figures showed deflation in Hungary deepened not just because of energy and food. A surprise fall of core inflation in December could also reflect soft domestic demand, a Barclays economist said. Demand outlook also weighed on BUX.

Meanwhile, low demand is aggravated by real life where many consumers are unable to feel the cheapness suggested by headline figures.

Thus, measures of underlying inflation of the MNB, also out Wednesday, showed that the indicator for demand-sensitive inflation, which excludes processed foods from core inflation, stayed unchanged at an annual 1.6% in December, and the indicator for sticky price inflation, which includes items for which retail prices vary, on average, no more than 15% a month, or prices which rarely change, rose to 2.2% in December on the year after staying at 2.1% in the previous two months.

Despite a further fall of the Russian rouble against major currencies and the forint, Richter gained on European health care sector's newly found attraction, but MOL was again pressured by a target price cut and a "reduce" recommendation from Nomura, while its Croatian subsidiary, INA announced a temporary stoppage in one of its two refineries in Croatia due to falling oil prices, and Hungarian petrochemical company TVK's share fell sharply after MOL offered to buy the rest of the company it does not already own on Tuesday.

OTP lost 0.53% to HUF 3,600 on turnover of HUF 3.42 bln from a HUF 5.73 bln session total, about a quarter short of the daily average last year.

MOL fell 1.53% to HUF 11,245 on turnover of HUF 1.01 bln.

Magyar Telekom sank 0.29% to HUF 338 on turnover of HUF 74 mln.

Richter advanced 0.95% to HUF 3,396 on turnover of HUF 1.09 bln.

The bourse's mid-cap BUMIX went out 0.43% lower at 1,435.87.

Elsewhere in the region, the WIG 20 in Warsaw was down 1.31%, while Prague's PX dropped 0.46%. Western Europe's major indices were all down ahead of their close Wednesday, FTSE-100 in London 2.30%, DAX30 in Frankfurt 1.07%, and CAC40 in Paris 1.36%.

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