ING’s Frantisek Taborsky reports a broad risk-off move in Central and Eastern Europe (CEE), with elevated Oil and higher core yields pushing CEE rates up. Hungarian assets have suffered heavy selling, which he links to crowded longs and profit-taking. Taborsky still finds Hungarian rates and FX attractive, expecting EUR/HUF to trade mostly in a 350–360 range for the rest of the year.

Sell-off seen overdone with attractive carry

"Hungarian assets are facing the heaviest selling pressure within the whole EM space over the last several days, which we attribute to crowded long positioning and a broadly bullish market view since the April general elections. Yesterday’s move likely reflected some profit-taking and risk reduction amid global uncertainty."

"Markets slightly increased the implied probability of Czech National Bank rate cuts, now pricing almost two hikes. In Poland, rate cut expectations for this year fell to around 20%, while in Hungary the expected easing cycle has been scaled back from 150bp a few days ago to 120bp."

"We continue to see value at the front end of the curve, further steepening and the currency, while the recent sell-off appears to have been overdone. EUR/HUF stabilised above 361, its highest level since mid-May and close to post-election levels. We still see 350-360 as the most likely EUR/HUF range for the rest of the year."

"However, we do not think the underlying story has changed much: both rates and FX remain attractive, particularly after the sell-off and improved entry levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)