Economy 3 February 2014, 4:46pm

Hungary 5-yr CDS spread at 5-month high

Portfolio

China’s manufacturing PMI and services PMI readings (6-month and 5-year lows, respectively) did not exactly improve the jittery mood on global financial markets over the weekened, and it stock markets also failed to get a boost from overall favourable PMI figures in the euro area. Hungary’s forint, however, did benefit from the Hungarian manufacturing PMI’s jump to a seven-year high, given the currency was hovering around 314 versus the euro, a two year low for the HUF. PMI data from the U.S. is still in the pipeline today and Hungarian PM Orbán is to speak in Parliament (spring session opening), where he might say something affecting the HUF.

Weak start for the HUF - 16:43

This week started badly for U.S. market, as a consequence of which risk appetite slackened. U.S. stock indices have shed 0.8-1.0% since the disappointing ISM manufacturing PMI reading came out (the Jan reading dropped to an over 6-month low of 51.3 from 56.5 in Dec13, against the market's call for a cc. 56 print).

Amidst worsening global investor sentiment Hungary’s forint also depreciated and returned to around 313 versus the euro.

HUF rock steady - 14:56

Over the past three hours Hungary’s forint has been virtually motionless at around 312.20 versus the euro.

Hungary CDS spread at 5-month high - 12:49

In parallel with the forint slumping to a two-year low versus the euro (and its negative impact on the country’s FX debt) Hungary’s 5-year CDS spread rose to a five-month high today, Reuters reported. The indicator went up 16 basis points to 286 bps. Gaurav Saroliya, a strategist at UniCredit SpA in London, said investors do not especially like Hungary’s economic and monetary policy strategies and put into question the central bank’s drive for further rate cuts.

Hungary is considered one of the central European economies most exposed to contagion from the emerging market sell-off, due to high debt levels and an aggressive rate cutting cycle that has taken interest rates to a record low 2.85 percent.

"Hungary is being challenged by the market," Reuters cited Luis Costa, emerging markets strategist at Citi, as saying today.

"Markets are already hiking on behalf of central banks. It becomes a vicious cycle."

HUF around 312 to EUR at noon - 12:08

Following hectic trading in the morning, the interbank forint market is relatively calm at noon. The HUF is quoted around 312 to the EUR, around 255.30 against the Swiss franc and around 230.70 versus the US dollar. The forint is apparently making a turnaround from a two-year low versus the EUR and the CHF and from a 9-month low against the USD.