CEE MARKETS 2-Currencies ease on low inflation, Slovenian stocks fall

Fri Jul 11, 2014 8:23am EDT

* Low CPI could trigger rate cuts
    * Slovenian stocks fall ahead of Sunday's election
    * Bank stocks mixed after plunge; Raiffeisen sees profit

    By Sandor Peto
    BUDAPEST, July 11 (Reuters) - Central European currencies eased on Friday
after a fall in Hungary's inflation rate to the lowest since 1968 strengthened
expectations of interest rate cuts in the region.
    A string of low inflation figures also helped the region's government bonds
mostly withstand a yield rise in the euro zone due to investor fears over
financial troubles at the family-owned holding companies behind Portugal's
largest listed bank.
    "There may be pressure on international markets, but here inflation is in
minus and the central bank will cut rates further," one Budapest-based fixed
income trader said.
    Concerns about the health of Central Europe's own banks eased. Bank shares
were mixed after a plunge in the past week.
    Hungary's consumer price index in June was 0.3 percent lower from the same
month of 2013, pushed down by cheaper food prices and government-imposed energy
price cuts.
    The forint eased a shade against the euro by 1137 GMT, but at
310.15 it stayed close to the 310 level around which it danced in the past days.
    Dealers said the data showed that the central bank could indeed cut its
record low 2.3 percent base rate further. The market impact was muted however as
a deputy governor of the bank said earlier this week that rates would not reach
2 percent.
    Societe Generale still said in a note that the bank could lower rates to 2
percent and that the local curve mispriced monetary policy. Forward rate
agreements (FRA) do not price in any further cut. Societe recommended
that investors should receive 6x9 FRAs at 2.31 percent, targeting 2.05 percent.
    The leu fell a quarter of a percent, extending the losses that it
has posted since Romania said on Thursday that annual inflation fell to a record
low 0.7 percent in June, strengthening the odds of continuing central bank rate
cutting.
    Romanian government bond yields rebounded slightly from record lows hit
after the inflation figures.
    "Our debt optimism has just strengthened, as we adjusted our key (central
bank) rate call and now expect 50 basis points of cuts to 3.00 percent," said
Vlad Muscalu, chief economist of ING Bank Romania, adding that the leu could
soon regain strength.
    Serbia's annual inflation fell in June to 1.3 percent from 2.1 in May. The
dinar eased slightly. The Serbian central bank kept its 8.5 percent
main interest rate on hold on Thursday, citing delays in fiscal reforms.
 
    Dealers said the bank bought 10 million euros in the market on Thursday to
prevent a firming of the dinar which it prefers to keep at 116 against the euro
or slightly weaker. 
    Poland, the region's biggest economy, will publish its own June inflation
figures on Tuesday.     
    
    SLOVENIAN STOCKS FALL 
    Slovenia's blue-chip SBI equities index lost 1.67 percent amid
uncertainty regarding privatisation ahead of the snap general election on
Sunday.
    Law professor Miro Cerar, who is in the best position to become the next
prime minister after the vote, has said he opposes selling telecoms operator
Telekom Slovenia and airport Aerodrom Ljubljana.  
    "The stocks can fall further after the election until it is clear whether
the new government will continue with privatisation," said Saso Stanovnik, chief
economist of investment firm Alta Invest.
    "Although privatisation could slow down I expect it will continue in line
with European Commission demands." 
    Pressure on the region's stock markets eased. The stocks of its banks were
mixed after a plunge in the past week on profit warnings from some banks, mainly
due to Hungarian legislation to compensate retail borrowers for mispriced loans.
    A senior official of Austria's Raiffeisen was quoted on Friday as saying
that the group would remain profitable this year despite the hit in Hungary. 
    Raiffeisen shares were flat in the Vienna bourse. The stocks of
Erste  rose 2.7 percent in Prague, helping the main equities
index there gain 1.7 percent. The shares of Hungary's biggest bank, OTP,
 extended losses, falling 1.1 percent.    
                     CEE MARKETS SNAPSHOT AT 1337 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.440    27.440    0.00%  -0.39%
 Hungarian forint           310.150   310.085    -0.02%  -4.25%
 Polish zloty                 4.144     4.142    -0.03%  +0.14%
 Romanian leu                 4.415     4.404    -0.25%  +1.03%
 Croatian kuna                7.614     7.614   -0.01%  +0.05%
 Serbian dinar              115.930   115.910    -0.02%  -1.23%
 Note: daily change calculated from previous close at 1800 CET
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      959.03   943.40   +1.66%  -2.82%
 Budapest                    17832.16 17854.11  -0.12%   -2.74%
 Warsaw                      2368.35  2341.18   +1.16%  -1.50%
 Bucharest                   6828.84  6803.19  +0.38%  +5.42%
 Ljubljana                   759.27   772.17    -1.67%  +18.45%
 Zagreb                      1801.26  1806.76    -0.30%  +1.17%
 Belgrade                    579.73   579.30   +0.07%  +5.10%
 Sofia                       540.51   546.33    -1.07%  +10.00%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.278    0.000   +26bps    0bps
   5-year                0.597   +0.017   +29bps   +1bps
  10-year                1.513    +0.011   +31bps    +1bps
 Hungary
   3-year                3.130    +0.092   +308bps   +9bps
   5-year                3.380     0.000   +307bps    0bps
  10-year                4.370    +0.104   +316bps   +10bps
 Poland
   2-year                2.460   0.000    +244bps   0bps
   5-year                2.989   0.000    +268bps   0bps
  10-year                3.417   0.000    +221bps   -1bps
 ******************* FORWARD RATE AGREEMENTS ******************
                               3x6     6x9    9x12  3M interbank
 Czech Rep                    0.330   0.345  0.345   0.35
 Hungary                      2.325   2.390  2.470   2.31
 Poland                       2.400   2.320  2.320   2.68
 Note: FRA quotes are for ask prices
 **************************************************************
 
 (Additional reporting by Marja Novak in Ljubljana/Luiza Ilie in
Bucharest/Aleksandar Vasovic in Belgrade; Editing by Andrew Roche)