May 3, 2018 / 9:36 AM / 3 months ago

CEE MARKETS-Crown eases on dollar strength although Czech cenbank seen hawkish

    * Czech central bank seen holding rates
    * Czech weakness expected to encourage cbank hawks
    * Czech bonds outperforms Hungary, Romania

    By Sandor Peto
    BUDAPEST, May 3 (Reuters) - The crown eased versus the euro
on Thursday as expectations for hawkish comments from the Czech
central bank (CNB) were outweighed by indications from the U.S.
Federal Reserve of a continued rise in its interest rates.

    Investors in Central Europe have been closely watching the
euro/dollar cross in the past weeks, which hovered around
the 1.2 line on Thursday.
    A flow of funds into the greenback knocked the region's
currencies to multi-month lows by Tuesday, and they traded near
those levels after Wednesday's Fed meeting.
    The crown slightly outperformed regional peers on
Wednesday as its recent weakness is expected to prompt hawkish
comments from the CNB's meeting on Thursday.
    The currency eased 0.2 percent to 25.615 against the euro by
0832 GMT, while the zloty shed 0.1 percent in slow
international trade as Warsaw markets were closed for holiday.
The forint and the leu were steady.  
    Czech rate setters have said repeatedly that they would need
less rise in interest rates if the crown strengthens. The bank's
forecasts included crown levels firmer than 25 for this quarter.
    The bank is expected to keep its two-week repo rate on hold
at 0.75 percent, but could signal further rate hikes to come
this year, market participants said.
    Only one out of 14 analysts in a Reuters poll projected a
hike for Thursday's meeting. Eight analysts saw the bank's next
rate hike coming in the third quarter, including five that put
it to the Aug. 2 meeting.
    Higher interest rates could strengthen the crown and that
makes long-term Czech government bonds attractive, Raiffeisen
analyst Stephan Imre said in a note.
    "We expect the CNB to deliver a more hawkish message at the
press conference to be held following today's CNB board meeting.
More currency driven local bond market gains would be logical
consequence of this," he added. 
     The yield on Czech 10-year government bonds dropped 2 basis
points to 1.73 percent, while Hungary's corresponding paper
traded at 2.61 percent, 6 basis points above Wednesday's fixing.
    Romania's 10-year yield was bid at 4.62 percent, up by 1
basis point.
    There is scope for the Romanian central bank to acquiesce to
the consensus view of a policy rate hike at its meeting on May
7, Erste Group's chief economist in Romania, Horia Braun-Erdei
said in a note.
    With the dollar's strength looking like it could last and a
Fed rate hike in June almost certain, assets in emerging markets
including Central Europe may face further selling, he said.
    "We could be looking ahead at a more prolonged bear market
for this asset class," he added.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1032 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6150   25.5700    -0.18%    -0.28%
 crown      >                                       
 Hungary    <EURHUF=  314.5000  314.5000    +0.00%    -1.14%
 forint     >                                       
 Polish     <EURPLN=    4.2766    4.2708    -0.14%    -2.34%
 zloty      >                                       
 Romanian   <EURRON=    4.6635    4.6645    +0.02%    +0.35%
 leu        >                                       
 Croatian   <EURHRK=    7.4160    7.4125    -0.05%    +0.19%
 kuna       >                                       
 Serbian    <EURRSD=  118.0400  118.1000    +0.05%    +0.39%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1116.83  1116.870    -0.00%    +3.59%
                                       0            
 Budapest             38190.02  37969.84    +0.58%    -3.02%
 Bucharest             8769.87   8731.02    +0.44%   +13.11%
 Ljubljana  <.SBITOP    838.07    841.75    -0.44%    +3.93%
            >                                       
 Zagreb                1833.11   1828.32    +0.26%    -0.53%
 Belgrade   <.BELEX1    738.92    738.50    +0.06%    -2.75%
            5>                                      
 Sofia                  656.24    654.28    +0.30%    -3.13%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.7960    0.0630   +135bps     +6bps
            R>                                      
   5-year   <CZ5YT=R    1.2100   -0.0010   +125bps     +0bps
            R>                                      
   10-year  <CZ10YT=    1.7290   -0.0160   +115bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.98      1.07      1.17      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.04
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Raissa Kasolowsky)
  
 
 
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