March 21, 2017 / 10:44 AM / 5 months ago

CEE MARKETS-Czech crown surges in forward deals, cap speculation returns

    * Czech president suggests crown cap regime may end soon
    * Crown strongest vs euro on 3-month forwards since 2013
    * Zloty tests 7-month high, Polish stocks near 21-month high

    By Sandor Peto and Jan Lopatka
    BUDAPEST/PRAGUE, March 21 (Reuters) - The Czech crown surged
against the euro in forward contracts on Tuesday after the
country's president suggested the central bank could soon remove
its cap on the currency's spot value.
    The central bank (CNB) introduced the cap, which keeps the
crown below 27 against the euro, in late 2013 to fight deflation
risks. Defending the cap, it has tripled its foreign currency
reserves, buying tens of billions of euros this year.
    Inflation recently reached the bank's 2 percent target.
    The bank has a hard commitment to maintain the cap until the
end of this month, and has said it would remove it around the
middle of the year.
    On Monday, President Milos Zeman said: "I spoke to (CNB)
governor Rusnok two days ago, and I will tell no secret when I
say that the end of the exchange rate commitment is expected in
the first half, and it is not excluded that possibly sooner than
we know it."
    The crown traded flat at 27.02 against the euro,
but its implied rate was bid at 26.829 in 3-month forwards
, its firmest level since the cap was introduced.
    "In practice this of course meant that the CNB had to buy
even more foreign reserves," CSOB said in a note, adding the CNB
may abandon the cap any time from April.
    The one-year implied rate, at 26.697, was still
weaker than its January peaks at 26.574.
    But its rise in forwards shows that speculation over a rise
in the crown is increasing again, despite warnings from the
central bank that the currency has become heavily overbought.
    International sentiment remains positive for Central
European assets. Investors are pricing in a slower rise in U.S.
interest rates since the Fed's meeting last week.
    The zloty had firmed 0.3 percent to 4.2608 against
the euro by 1006 GMT, testing 7-month highs it reached in
overnight trade.
    It is the region's best performing currency this year, up
3.43 percent, and the Warsaw bourse's bluechip index,
which rose 0.5 percent, also leads the region. It has risen by
almost 18 percent since 2016 and is near 21-month highs.
    Alior Bank analyst Tomasz Kolarz said a pick-up in economic
growth and the labour market encouraged retail investors to
invest in equities funds.
    "It seems, however, that (a) positive macroeconomic scenario
is already priced in, and for further gains some positive
surprises would be needed," he added.
    
              CEE        SNAPS   AT  1106          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02  -0.01  -0.06
                            20     00      %      %
 Hungary                 308.6  308.2  -0.11  0.07%
 forint                    000    650      %  
 Polish                  4.260  4.274   +0.3  3.36%
 zloty                       8      9     3%  
 Romanian                4.563  4.560  -0.05  -0.61
 leu                         0      7      %      %
 Croatian                7.405  7.405   +0.0  2.03%
 kuna                        0      8     1%  
 Serbian                 123.7  123.9   +0.1  -0.32
 dinar                     500    300     5%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  984.7  979.8   +0.5   +6.8
                             6      1     1%     5%
 Budapest                32078  32357  -0.86   +0.2
                           .70    .88      %     4%
 Warsaw                  2293.  2281.   +0.5   +17.
                            75     45     4%    75%
 Bucharest               7992.  7967.   +0.3   +12.
                            55     09     2%    81%
 Ljubljana               800.2  803.8  -0.45   +11.
                             6      8      %    52%
 Zagreb                  2147.  2154.  -0.32   +7.6
                            48     34      %     5%
 Belgrade     <.BELEX15  746.9  746.0   +0.1   +4.1
              >              6      6     2%     2%
 Sofia                   636.0  636.5  -0.08   +8.4
                             9      9      %     7%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.42   0.13   +031   +9bp
              >              7           bps      s
   5-year     <CZ5YT=RR  0.231  0.071   +051   +3bp
              >                          bps      s
   10-year    <CZ10YT=R  1.007  0.052   +053   +1bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.119  -0.00   +285  -4bps
              >                     2    bps  
   5-year     <PL5YT=RR  3.071      0   +335  -5bps
              >                          bps  
   10-year    <PL10YT=R  3.733  -0.00   +325  -4bps
              R>                    1    bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.29   0.32   0.41      0
              PRIBOR=>                        
 Hungary              <   0.33   0.41   0.58   0.22
              BUBOR=>                         
 Poland               <  1.765    1.8   1.86   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Bartosz Chmielewski in Warsaw; Editing
by Mark Potter)
  
 
 

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