July 26, 2017 / 8:52 AM / 3 years ago

CEE MARKETS-Zloty firms on hope EU sanction on Poland is not imminent

    * EU seen threatening Poland, but not launching sanctions
yet
    * Zloty firm, but could remain shaky over judicial reform
plans
    * Fed watched, hawkish comments could weaken CEE fx, bonds

    By Sandor Peto
    BUDAPEST, July 26 (Reuters) - The zloty firmed slightly on
Wednesday on expectations that the European Union's executive
will not launch new legal proceedings against Poland over a law
allowing the government to appoint judges.
    Trading at 4.2548 against the euro at 0803 GMT, the zloty
 was up 0.1 percent, while other Central European
currencies were flat or strengthened slightly.
    But the zloty remained near the 3-month lows it hit on
Monday as a result of concerns over judicial reforms, the street
protests they triggered, and the threat of EU sanctions.
    Its weakness indicates that investors remain on edge.
    Their concerns abated somewhat on Monday, after Polish
President Andrzej Duda said he would veto two of the three
judiciary reform bills.
    But the third bill that he ratified on Tuesday allows the
justice minister to hire and fire the senior judges who head
ordinary courts and the government has not dropped its plan to
replace Supreme Court judges.
    One EU official who declined to be named said the EU's
executive on Wednesday would threaten Poland with rapid legal
consequences if it begins dismissing judges.
    The European Commission is unlikely to launch a new
infringement procedure against Poland now, but could empower its
president, Jean-Claude Juncker, to launch legal cases if the
Polish presidential veto is reversed.
    "The standoff with the European Commission on the judicial
reforms is likely to continue," Raiffeisen analyst Wolfgang
Ernst said in a note.
    "For the zloty this uncertainty should contribute to a
prolonged phase of elevated volatility with EUR/PLN expected to
remain in a basic 4.20-4.30 range for the time being," he added.
    If inflation rises and expectations for Polish central bank
interest rate hikes return, the zloty can still firm in the next
weeks, analysts said.
    At a meeting on Aug. 3, Czechs may become the first major
central bank in the region to lift interest rates for more than
five years.
    The Czech crown has firmed almost 4 percent the
euro since the bank scrapped a cap on it at 27 against the euro
in April, but it has got stuck on the weak side of the 26 level.
    Investors will also closely watch comments from the Federal
Reserve's meeting on Wednesday. Any reference to upcoming cuts
in the Fed's balance sheet could lead to a weakening of
currencies and bonds in Central Europe, traders said.
    "The forint, however, looks bullet-proof," one
Budapest-based trader said, adding that the inflow of funds from
the EU and a strong trade surplus buoyed the currency. 
    
                CEE MARKETS  SNAPSH   AT  1003 CET         
                             OT                      
                             CURRENCIES                    
                             Latest  Previo  Daily   Change
                                     us              
                             bid     close   change  in
                                                     2017
 Czech crown                 26.014  26.015   +0.01   3.82%
                                  0       5       %  
 Hungary                     305.55  305.45  -0.03%   1.07%
 forint                          00      00          
 Polish zloty                4.2548  4.2578   +0.07   3.50%
                                                  %  
 Romanian leu                4.5600  4.5651   +0.11  -0.55%
                                                  %  
 Croatian kuna               7.4155  7.4145  -0.01%   1.88%
 Serbian dinar               120.63  120.76   +0.11   2.25%
                                 00      00       %  
 Note: daily    calculated   previo  close   1800          
 change         from         us      at      CET     
                             STOCKS                        
                             Latest  Previo  Daily   Change
                                     us              
                                     close   change  in
                                                     2017
 Prague                      1013.5  1015.1  -0.16%   +9.97
                                  1       3               %
 Budapest                    35301.  35286.   +0.04   +10.3
                                 12      14       %      1%
 Warsaw                      2352.9  2341.3   +0.50   +20.8
                                  9       6       %      0%
 Bucharest                   8345.4  8328.7   +0.20   +17.7
                                  1       3       %      9%
 Ljubljana                   808.57  808.80  -0.03%   +12.6
                                                         8%
 Zagreb                      1875.4  1879.3  -0.21%  -5.99%
                                  4       9          
 Belgrade                    716.78  718.50  -0.24%  -0.08%
 Sofia                       711.76  711.77   +0.00   +21.3
                                                  %      7%
                             BONDS                         
                             Yield   Yield   Spread  Daily
                             (bid)   change  vs      change
                                             Bund    in
 Czech                                               spread
 Republic                                            
   2-year                    -0.025       0   +066b   +1bps
                                                 ps  
   5-year                      0.07       0   +023b   +1bps
                                                 ps  
   10-year                    0.964   0.012   +041b   +3bps
                                                 ps  
 Poland                                                    
   2-year                     1.851  -0.002   +253b   +1bps
                                                 ps  
   5-year                     2.659  -0.013   +281b   +0bps
                                                 ps  
   10-year                    3.315  -0.005   +276b   +1bps
                                                 ps  
                FORWARD      RATE    AGREEMENT             
                             3x6     6x9     9x12    3M
                                                     interb
                                                     ank
 Czech Rep              <PR    0.52    0.66    0.75       0
                IBOR=>                               
 Hungary                <BU    0.21    0.23    0.27    0.15
                BOR=>                                
 Poland                 <WI    1.78   1.781    1.85    1.73
                BOR=>                                
 Note: FRA      are for ask                                
 quotes         prices                               
 **********************************************************
 ****
 
 (Reporting by Sandor Peto ")
  
 
 
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