May 23, 2018 / 2:18 PM / 5 months ago

CEE MARKETS-Currencies plunge on dollar rally, weak euro zone PMI

    * Lira's drop, Italian political uncertainty feed risk
aversion
    * Currencies set multi-month lows as dollar rallies
    * Czechs cut bond auction, yields rise 
    * Hungarian bond yield retreat good sign for auction-trader
    * Budapest leads fall of regional stock indices

 (Recasts with Czech auction, new prices and comment)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, May 23 (Reuters) - Central Europe's main
currencies hit multi-month lows, and stocks fell on Wednesday as
downbeat manufacturing data further weakened the euro and curbed
bets for a European Central Bank rate hike by mid-2019.
  
    The Turkish lira's persistent decline also
fuelled risk aversion in emerging markets, while uncertainty
over the policies of Italy's incoming government soured
sentiment elsewhere in the European Union.
    Central European assets have taken a beating this month as a
dollar and U.S. bond yield rally prompted a sell-off in emerging
markets.
    But they have outperformed other emerging markets including
Turkey, where the lira is at record lows on concern about
President Tayyip Erdogan's influence on monetary policy.
   
    Politics rarely have a direct influence on markets in the
European Union's fast-growing and relatively stable central and
eastern economies which have been tightly integrated with the
euro zone.
    As the dollar dashed through 1.17 versus the euro for
the first time since November, the zloty revisited a
6-and-1/2-month low which it already reached on Monday at 4.3145
against the euro, and traded at 4.3068 at 1308 GMT.
    The Czech crown shed 0.5 percent, after touching
its weakest levels this year, and the forint,
weakening 0.4 percent, hit a new 23-month low.
    The crown has been closely watched as it has traded weaker
than the central bank's forecasts, raising speculation that it
may bring forward a rate hike which many market participants had
expected for November.
    Yields at a Czech auction of 4-, 8- and 12-year government
bonds were 20-30 basis points higher than in sales earlier this
year, and the Finance Ministry sold much less 4-year papers than
planned.
    Hungarian long-term bond yields have risen even more in the
past weeks, before a 5-basis-point retreat on Wednesday,
tracking U.S. Treasuries and Bunds.
    The Hungarian 10-year paper traded at 3.15 percent, still up
more than 60 basis points this month, while Poland's
corresponding yield was up by less than 20 basis points,
shedding 2 basis points on Wednesday.
    The Hungarian yield had been lower than its Polish peer
since early 2016, in some periods by more than 100 basis points,
before closing the gap this week.
    Wednesday's retreat in yields is a good sign ahead of
Hungary's bi-weekly government bond auction on Thursday, a
Budapest-based fixed income trader said.
    "I do not feel it justified (by economic fundamentals) that
the markets of our region have got such a severe beating," the
trader added.
    Budapest led a fall for equities in the region, in tandem
with a decline in Western European markets, with its blue-chip
index dropping as much as 2.6 percent.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1508 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8200   25.6950    -0.48%    -1.08%
 crown      >                                       
 Hungary    <EURHUF=  319.2400  317.9500    -0.40%    -2.61%
 forint     >                                       
 Polish     <EURPLN=    4.3068    4.2814    -0.59%    -3.03%
 zloty      >                                       
 Romanian   <EURRON=    4.6281    4.6270    -0.02%    +1.11%
 leu        >                                       
 Croatian   <EURHRK=    7.3950    7.3832    -0.16%    +0.48%
 kuna       >                                       
 Serbian    <EURRSD=  118.1100  118.1300    +0.02%    +0.33%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1102.57  1103.290    -0.07%    +2.26%
                                       0            
 Budapest             35442.32  36400.77    -2.63%    -9.99%
 Warsaw                2206.20   2248.71    -1.89%   -10.36%
 Bucharest             8380.96   8429.08    -0.57%    +8.09%
 Ljubljana  <.SBITOP    900.61    896.06    +0.51%   +11.69%
            >                                       
 Zagreb                1853.84   1859.77    -0.32%    +0.60%
 Belgrade   <.BELEX1    744.29    743.26    +0.14%    -2.04%
            5>                                      
 Sofia                  642.13    644.44    -0.36%    -5.21%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.9540    0.0690   +158bps    +10bps
            R>                                      
   5-year   <CZ5YT=R    1.4670    0.0620   +161bps    +12bps
            R>                                      
   10-year  <CZ10YT=    2.0000    0.0160   +150bps     +8bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6160    0.0090   +224bps     +4bps
            R>                                      
   5-year   <PL5YT=R    2.4980   -0.0230   +264bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2230   -0.0230   +272bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.03      1.19      1.33      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.28      0.36      0.46      0.12
                                                    
 Poland                   1.75      1.78      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Writing by Sandor Peto; Editing by Toby Chopra)
  
 
 
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