May 13, 2019 / 9:35 AM / 11 days ago

CEE MARKETS-Crown falls as Czech inflation slows, trade war fears return

    * Trade war fears, Czech CPI drop weigh on currencies
    * Leu bucks weaker market after surprise rise in Romanian
CPI
    * Polish, Romanian central banks seen holding fire
    * Q1 GDP growth data seen showing slowdown except for
Hungary  

    By Sandor Peto
    BUDAPEST, May 13 (Reuters) - Most Central European
currencies and stocks eased on Monday as the Czech Republic
published lower-than-expected inflation data and the U.S.-China
trade talks ran into a deadlock over the week-end.
    The crown and the forint were 0.2% down
against the euro by 0808 GMT and the zloty weakened by 0.1%.
    The crown touched a 6-week low of 25.79 as Czech inflation
unexpectedly slowed to 2.8% in April. 
    The Czech central bank (CNB) increased its interest rates
for the eighth time in two years early this month after
inflation rose well above its 2% target.
    Monday's CPI figures add to expectations that the central
bank is likely to pause its rate hikes for the rest of the year
but could move either way later. 
    If Britain quits the European Union without a deal or the
euro zone economy slows, the CNB's next move may be a cut, Erste
group analyst Jiri Polansky said in a note.
    "On the other hand, recovery in the Euro Area could
"persuade" the CNB to hike," he added. 
    Other currencies in the region also eased.
    Equity indexes in Budapest, Bucharest and
Warsaw shed about 0.3%.       
    The trade war between the world's two biggest economies
weakens emerging market assets as investors avoid risk. The
resulting worry over global growth weighs on inflation and
interest rate expectations.
    Luxury car makers Daimler AG and BMW
are putting their investments in Hungary on hold as the industry
struggles with lower demand and the threat of higher auto
tariffs by the United States on car imports from Europe.

    U.S. President Donald Trump is due to meet visiting
Hungarian Prime Minister Viktor Orban later on Monday.
    First-quarter economic output figures due from the region's
main economies later this week are likely to show growth in the
region still outpaced the euro zone though at a slower rate
except for Hungary, where analysts project steady 5.1% annual
growth.  
    The Polish and Romanian central banks are expected to keep
their interest rates on hold on Wednesday.
    A rise in Polish inflation to 2.2% in April could give the
Monetary Policy Council's hawks ammunition, analysts said, but
inflation is still well within the 1.5-3.5% target range.
    Monday's Romanian figures showing a surprise rise in annual
inflation to 4.1% in April, the region's highest level, create a
chance for a rate hike, analysts said.
    But it is more likely that the bank will keep liquidity
tight in leu markets to fight inflation, and support the
currency via market interventions if needed, they said.
    The leu bucked the weaker regional trend, trading
at 4.76 versus the euro.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1008 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7850   25.7400    -0.17%    -0.30%
 crown      >                                       
 Hungary    <EURHUF=  324.3300  323.7500    -0.18%    -1.00%
 forint     >                                       
 Polish     <EURPLN=    4.3040    4.2989    -0.12%    -0.33%
 zloty      >                                       
 Romanian   <EURRON=    4.7600    4.7615    +0.03%    -2.23%
 leu        >                                       
 Croatian   <EURHRK=    7.4055    7.4055    +0.00%    +0.06%
 kuna       >                                       
 Serbian    <EURRSD=  117.8500  117.9500    +0.08%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1048.33  1049.640    -0.12%    +6.26%
                                       0            
 Budapest             40923.39  41068.21    -0.35%    +4.56%
 Warsaw                2186.23   2191.91    -0.26%    -3.97%
 Bucharest             8282.42   8304.58    -0.27%   +12.17%
 Ljubljana  <.SBITOP    866.55    868.67    -0.24%    +7.75%
            >                                       
 Zagreb                1839.94   1840.78    -0.05%    +5.21%
 Belgrade   <.BELEX1    730.85    731.71    -0.12%    -4.05%
            5>                                      
 Sofia                  571.50    571.54    -0.01%    -3.86%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7200   -0.0600   +235bps     -6bps
            R>                                      
   5-year   <CZ5YT=R    1.7440   -0.0510   +222bps     -4bps
            R>                                      
   10-year  <CZ10YT=    1.8550   -0.0060   +191bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6570   -0.0060   +228bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.2580   -0.0170   +274bps     -1bps
            R>                                      
   10-year  <PL10YT=    2.8870   -0.0160   +295bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.25      2.26      2.26      2.20
            <PRIBOR=                                
            >                                       
 Hungary                  0.35      0.50      0.67      0.16
                                                    
 Poland                   1.75      1.76      1.77      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Reporting by Sandor Peto; editing by Emelia Sithole-Matarise)
  
 
 
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