Trade truce boosts stocks, currencies, despite fall in PMIs

BUDAPEST: Central European stocks hit multi-month highs and currencies mostly gained on Monday, helped by a truce in the US-China trade war and unaffected by a drop in manufacturing sentiment indices.

Regional currencies strengthened. The relatively volatile forint gained almost half a percent against the euro to trade at 322.4 at 0952 GMT.

The zloty hit a four-week high beyond 4.28 versus the euro and then retreated to 4.2817, still up by 0.2 percent. The Czech crown rose 0.1 percent to 25.948.

In stock markets, Budapest's main index rose above the 40,000-point mark for the first time in 10 months, gaining more than 1 percent. Warsaw's blue-chip index which reached its highest level in 3 months.

Romanian stocks, rose 0.6 percent to their highest in six and a half months.

Regional assets mostly advanced even though November Purchasing Managers' Indices (PMIs) released in Budapest, Prague and Warsaw fell.

Warsaw's index even fell below the 50-point mark, which separates economic contraction from growth, for the first time since September 2014.

"The PMI reading seems to signal clearly that worsening of business climate abroad is passing through to domestic manufacturing; however, it should be noted that other business surveys were not as pessimistic," Santander Bank said in a note.

A drop in Hungary's index to 53.5 from 57.1 in October confirmed wage increases and consumption may be slowing, while companies face capacity bottlenecks from a shortage of labour, analysts said.

"Growth is likely to slow in the fourth quarter and the first quarter of next year," ING analyst Peter Virovacz said.  "Many companies complain that they are unable to run at more than 60 to 70 percent of their capacities," he added.

The data and a surprise decline in Poland's annual inflation to 1.2 percent in November underpin that the country's central bank will keep rates on hold on Wednesday and retain its forecast for keeping them unchanged, possibly for years, analysts said.

Poland's 10-year government bond yield dropped 1 basis point to 3.03 percent. Hungarian yields, which traded at multi-month lows last week tracked a rise in US Treasury yields, with 10-year debt trading at 3.14 percent.