December 12, 2016 / 10:41 AM / 2 years ago

CEE MARKETS-Leu eases after Social Democrats win Romanian election

* Leu eases, election winner PSD may keep fiscal policy
    * Romanian stocks outperform, bonds seen facing political
    * CEE bonds ease as Fed is seen lifting rates

    By Sandor Peto
    BUDAPEST, Dec 12 (Reuters) - Romania's leu eased while other
Central European currencies firmed on Monday while Bucharest
stocks rose after the leftist Social Democrats (PSD) won a
parliamentary election there on Sunday. 
    The PSD won about 46 percent of the vote, which could allow
them to form a stable government, but the party's loose fiscal
policy proposals have fuelled worries among investors.
    The leu slipped 0.1 percent to 4.5065 against the
euro, staying within the range near 4.5 of the last two months.
    Hungary's forint firmed 0.2 percent and the Polish
zloty was steady.
    The Bucharest stock index rose 0.6 percent. Budapest
 and Prague were rangebound and Warsaw's bluechip
index continued to retreat from Thursday's
7-and-1/2-month peak, shedding 0.8 percent.
    Analysts said investor attention would now turn to the new
government's budget plans and whether it will tighten fiscal
policy to stop the budget deficit breaching the European Union
ceiling of 3 percent of economic output.
    "Markets might give the new government some time to come up
with fiscal countermeasures for 2017. Without fiscal tightening,
there is a large risk of a deficit overrun next year," Erste
analysts said in a note.
    The winning Social Democrats had advocated a wage hike and
value-added tax cut programme in the run-up to the election.
    On the positive side, PSD's strong win averts the threat of
difficult coalition talks to form a government, analysts said. 
    "Now it would be easy for PSD to form a (parliament)
majority," Raiffeisen analysts said in a note.
    Analysts said PSD's plans to further reduce taxes and social
contributions and to substantially increase public sector wages
and social transfers could push up Romanian government bond
yields, making Hungarian bonds relatively more attractive.
    But the leu, which is managed by the central bank, was seen
as unlikely to become very volatile.
    A Reuters poll of analysts indicated last week that the
central bank was unlikely to react quickly to a fiscal
loosening, but by late 2017 it may become the first of the
region's main central banks to hike rates. 
    Romanian bonds moved little early on Monday, while Poland's
and Hungary's 10-year yields rose 4-5 basis points, lifted by
expectations for an interest rate hike by the Federal Reserve on
    Romania's November annual inflation dipped further into
negative territory despite recent wage rises, to -0.7 percent.
           CEE        SNAPSHOT    AT  1034 CET               
                      Latest     Previous   Daily     Change
                      bid        close      change    in 2016
 Czech                  27.0260    27.0395    +0.05%   -0.10%
 Hungary               314.1000   314.7300    +0.20%    0.17%
 Polish                  4.4545     4.4544    +0.00%   -4.41%
 Romanian                4.5065     4.5017    -0.11%    0.28%
 Croatian                7.5310     7.5322    +0.02%    1.43%
 Serbian               123.4400   123.3600    -0.06%   -1.60%
 Note:     calculate  previous   close at   1800 CET         
 daily     d from                                     
                      Latest     Previous   Daily     Change
                                 close      change    in 2016
 Prague                  903.31     900.71    +0.29%   -5.54%
 Budapest              30503.82   30588.38    -0.28%   +27.52
 Warsaw                 1885.07    1899.76    -0.77%   +1.39%
 Buchares               6935.76    6894.98    +0.59%   -0.98%
 Ljubljan                706.05     705.46    +0.08%   +1.42%
 Zagreb                 1986.85    1982.98    +0.20%   +17.59
 Belgrade  <.BELEX15     722.74     719.52    +0.45%   +12.21
           >                                                %
 Sofia                   584.19     581.48    +0.47%   +26.75
                      Yield      Yield      Spread    Daily
                      (bid)      change     vs Bund   change
 Czech                                                spread
   2-year  <CZ2YT=RR     -0.766     -0.052   -002bps    -6bps
   5-year  <CZ5YT=RR     -0.118      0.022   +031bps    +1bps
           <CZ10YT=R      0.584       0.02   +020bps    -1bps
 10-year   R>                                         
   2-year  <PL2YT=RR      1.987          0   +273bps    -1bps
   5-year  <PL5YT=RR      2.915      0.046   +334bps    +3bps
           <PL10YT=R      3.658          0   +327bps    -3bps
 10-year   R>                                         
           FORWARD    RATE       AGREEMENT                   
                      3x6        6x9        9x12      3M
 Czech             <       0.27       0.24      0.23        0
 Rep       PRIBOR=>                                   
 Hungary           <       0.37       0.41       0.5      0.4
 Poland            <      1.755      1.775     1.805     1.73
 Note:     are for                                           
 FRA       ask                                        
 quotes    prices                                     
 (Reporting by Sandor Peto; Editing by Catherine Evans)
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