* Global risk aversion drives FX lower despite improved PMI
* Polish, Czech PMI improves in Aug, Hungarian PMI slips
* Polish bonds gain on auction plan, mixed elsewhere
(Adds bonds, updates market, writes through)
By Marton Dunai
BUDAPEST, Sept 1 (Reuters) - Eastern European currencies
were broadly weaker on Tuesday despite improving manufacturing
indices in Poland and the Czech Republic as global risk aversion
continued to dominate the market, dealers said.
The Polish zloty <EURPLN=> escaped with a milder loss,
shedding 0.1 percent at 0857 GMT, buoyed by the local Purchasing
Manager Index, which reached its highest in 15 months at 48.2.
[]
"This is a truly positive figure," Monika Kurtek, senior
economist at Bank BPH, said. "Industrial production in Poland
should start recovering and turning positive."
The Czech crown slipped a quarter of a percent despite
improved PMI figures, which neared the 50-point threshold,
indicating a pickup in manufacturing there as well.
Hungary's forint shed 0.6 percent as PMI there slipped to
45.8 from a July reading of 49.2.
On global markets, the environment was not supportive for
emerging market assets. Stock falls in U.S. and a stronger yen
point to weaker risk appetite, CIB Bank wrote in a morning note.
"We must wait for the real, hard indicators, especially on
core markets, to know when we can break out of current ranges in
the Eastern European region," a dealer in Budapest added. "I
expect that to happen on the weak side."
Technical resistance levels have prevented currencies from
significant weakening, but the region needs more positive news
flow to remain on a strengthening path, another dealer said.
Markets awaited the Polish finance ministry's inflation
estimate for August, which may show a stubbornly high price
index, despite weaker demand. That could put an end to interest
rate cut expectations there, Bank BPH wrote in a morning note.
In Prague and in Budapest, markets have cautiously started
watching 2010 budget negotiations as well.
"The crown does not react much to politics, but public
finance may be a big risk for the crown," said Miroslav Frayer,
FX analyst with Komercni Banka.
BONDS EYE ISSUANCE PLANS
The Czech finance ministry announced it would sell 12
billion crowns worth of state bonds in October, roughly the same
as in September but below market expectations. []
Bonds were little changed after the announcement, though the
lower issuance has supported markets in the past two months. The
Czech 10-year bond <CZ10YT=RR>, due for a Wednesday auction, has
fallen to 120 basis points from 180 basis points seen July 1.
"That's the best this year so (lower issuance) is having a
big impact," a dealer in Prague said.
Monday's news of Poland's potential cutdown on issuances for
the rest of the year continued to affect markets. []
Polish bonds were a tad stronger, benefitting from the
positive supply side details, and also keeping an eye on the
Finance Ministry's inflation forecasts, expected in the
afternoon. Trading there remained illiquid.
Hungarian bonds were mixed. Dealers said investors were
cautious after the Polish news, as well as sharp yields falls in
the past months and an upwards correction in the past days.
"Bids (yields) moved slightly higher," one Budapest-based
trader said. "It's difficult to make forecasts, the market is
cautious... Yesterday, when London was closed, trading interest
was near zero, today therefore it might be strong."
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.493 25.435 -0.23% +4.94%
Polish zloty <EURPLN=> 4.098 4.094 -0.1% +0.41%
Hungarian forint <EURHUF=> 273.82 272.156 -0.61% -3.75%
Croatian kuna <EURHRK=> 7.364 7.36 -0.05% +0.01%
Romanian leu <EURRON=> 4.217 4.224 +0.17% -4.8%
Serbian dinar <EURRSD=> 93.177 93.28 +0.11% -3.97%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +24 basis points to +143bps over bmk*
4-yr T-bond CZ4YT=RR 0 basis points to +163bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +326bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +283bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -23 basis points to +640bps over bmk*
5-yr T-bond HU5YT=RR -59 basis points to +595bps over bmk*
10-yr T-bond HU10YT=RR -47 basis points to +501bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1057 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
(Reporting by Marton Dunai; Editing by Ruth Pitchford)
