February 1, 2019 / 1:52 PM / 6 months ago

CEE MARKETS-Crown bucks currencies' retreat, PMIs gloomier

    * Czech and Polish PMIs still indicate economic contraction
    * Currencies mostly ease in a correction of past days' rally
    * Czech crown, a recent underperformer, remains steady

 (Adds Czech crown's rise, analyst comments)
    By Sandor Peto
    BUDAPEST, Feb 1 (Reuters) - Central European currencies
eased on Friday, shrugging off mixed manufacturing data, as
investors took profits following a rally triggered by
Wednesday's dovish Federal Reserve comments.
    The Czech crown, a recent underperformer, bucked the fall,
bouncing back from a technical support level.
    Earlier this week, the region's assets benefited from a
selling of the dollar as global markets priced out future U.S.
interest rate hikes, although the dollar regained some
ground by late on Thursday.
    The forint, which got additional support from
hawkish Hungarian central bank comments in January, was worst
hit in Friday's retreat, shedding half a percent against the
euro, to trade at 317.6.
    Hungary's 10-year government bond yield was down 10 basis
points at 2.64 percent, an eight-month low, dipping
below its Polish peer which traded at 2.73 percent.      
    The Polish zloty shed 0.2 percent against the
euro. Trading at 4.2717, it was off a six-month high set at
4.255 on Thursday. The Romanian leu eased by 0.35
percent to 4.7536 to the euro.
    Both the forint and the zloty - Central Europe's most liquid
currencies - were hit by profit taking, even though Hungary and
Poland's January manufacturing indices (PMIs) reflected a
diverging outlook.
    The Polish PMI stood at 48.2, which was above expectations,
but still indicated a continuing slowdown, while Hungary's PMI
at 54 still showed optimism that economic growth could stay
around 4 percent.
    "In Hungary, the domestic market pulls the manufacturing
industry, and this time its influence looks stronger than the
Czech or Polish," said Peter Virovacz, ING analyst in Budapest.
    While surging wages are helping the region's economies grow,
a slowdown in the euro zone is worsening their export outlook.
    The Czech PMI fell more than expected to 49 in January, a
six-year low, and continued to indicate economic contraction.

    The Czech crown still firmed by 0.3 percent to 25.679
against the euro, and rebounded from a one-month low against the
    It has underperformed recently after signs of economic
slowdown in the euro zone and comments from Czech rate setters
that curbed expectations for further Czech rate hikes.
    Even though few market participants now expect the Czech
central bank (CNB) to increase its rates again at its meeting on
Feb. 7, the crown rebounded, partly because a big corporate
player stopped selling it in the market, traders said.
    The crown's weakness could trigger a rate hike based on the
2018 pattern, but Europe's economic risks will make the CNB
cautious, KBC analysts said in a note.
   "The correlation between the strength of the koruna (crown)
and the interest rate settings... will not work for some time,"
they said. 
    The Polish and Romanian central banks are widely expected to
keep interest rates on hold at their meetings next week.
            CEE       SNAPSHOT   AT                         
            MARKETS             1358 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6790   25.7500    +0.28%    +0.11%
 crown      >                                       
 Hungary    <EURHUF=  317.6000  315.9500    -0.52%    +1.10%
 forint     >                                       
 Polish     <EURPLN=    4.2717    4.2620    -0.23%    +0.42%
 zloty      >                                       
 Romanian   <EURRON=    4.7536    4.7370    -0.35%    -2.10%
 leu        >                                       
 Croatian   <EURHRK=    7.4135    7.4223    +0.12%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.4500  118.4500    +0.00%    -0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1044.14  1043.550    +0.06%    +5.84%
 Budapest             40566.27  40855.56    -0.71%    +3.65%
 Warsaw                2378.37   2380.11    -0.07%    +4.47%
 Bucharest             7000.40   6950.84    +0.71%    -5.19%
 Ljubljana  <.SBITOP    832.54    832.65    -0.01%    +3.52%
 Zagreb                1762.21   1761.79    +0.02%    +0.77%
 Belgrade   <.BELEX1    715.07    714.63    +0.06%    -6.12%
 Sofia                  584.55    585.76    -0.21%    -1.67%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8720    0.1520   +245bps    +17bps
   5-year   <CZ5YT=R    1.5690   -0.0360   +192bps     -2bps
   10-year  <CZ10YT=    1.6720   -0.0280   +152bps     -2bps
   2-year   <PL2YT=R    1.4990    0.0050   +208bps     +2bps
   5-year   <PL5YT=R    2.1530    0.0060   +251bps     +2bps
   10-year  <PL10YT=    2.7530    0.0220   +261bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.08      2.11      2.13      1.99
 Hungary                  0.29      0.48      0.68      0.15
 Poland                   1.73      1.72      1.73      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Kevin Liffey and Susan
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