BUDAPEST: Central European currencies and stock indices slipped to their weakest levels this year and government bond yields rose on Tuesday, hit by political turmoil in Italy and Spain and the dollar’s extended gains.
Bank stocks led a fall which saw Warsaw’s bluechip index dipping to a 16-month low and Budapest’s a 12-month low.
The forint, piercing the 320 level against the euro, fell to a 2-year low, and the Czech crown, trading at 25.912, reached its weakest levels since December, as did Prague’s main stock index.
Regional assets have been knocked down this month as a rally of the dollar and US bond yields fuelled a sell-off in emerging markets.
European markets were pricing in new negative factors.
“The fresh factor which markets have to price in now is Italy,” one Budapest-based currency dealer said, adding that the forint could firm if international markets calm down. Spanish political uncertainty was also a worry.
Citigroup initiated a “trade idea of the week” to buy dollars against a 50-50 basket of zloty and forint “as a way to capitalise on EURUSD downside”.
“USDPLN and USDHUF trade respectively at 3.72 and 276.5. The risks to the trade stem from the sudden cooling of the political turmoil in Italy and Spain,” Citi said in a research note.
Italy’s president blocked formation of a eurosceptic government at the weekend but investors fear the country is still drifting towards conflict with euro zone partners.
The concerns hit bank stocks, which have heavy weightings in national stock indices in Central Europe.
Austrian-based regional banks Erste and Raiffeisen eased 3.4 and 2.5 percent in Vienna. Erste led a 1.5 percent fall in the main index of the Prague bourse, where its is also listed.
Warsaw-listed bank shares also fell 1.8 percent.
Budapest’s main index was knocked down by OTP Bank , whose shares fell a further 1.9 percent.
A rise in government debt yields in the euro zone peripheries also pushed Central Europe’s yields higher, with funds flowing into safer US and German paper instead.
Poland’s 10-year yield rose 6 basis points to 3.25 percent. Hungary’s corresponding yield was fixed higher by 5 basis points at 3.1 percent.