March 28, 2018 / 9:35 AM / in 23 days

CEE MARKETS-Czech crown touches 2-week low ahead of central bank meeting

    * Some investors fear dovish language from Thursday's CNB
meeting
    * Crown loss is moderate, may strengthen soon, analyst says
    * Polish stocks hit one-year low, U.S.-China trade war fear
flares
    * Romanian bonds buck modest regional yield decline

    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, March 28 (Reuters) - The crown touched a
two-week low against the euro on Wednesday, amid concern the
Czech central bank will strike a more dovish note at its meeting
on Thursday after inflation decline in February.
    "The sword of Damocles hangs above the crown," Komercni
Banka analysts said in a note.
    Central European currencies and stocks mostly fell, tracking
global risk-taking trends, as risks of a trade war between the
United States and China grew.
    Warsaw led the decline in equities prices, with its
blue-chip index shedding 1.8 percent by 0808 GMT and
hitting a one-year low.
    In currencies, the crown traded at 25.475, a shade
weaker from Tuesday and off a two-week low of 25.487. It has
been underperforming its regional peers recently after a retreat
in inflation across the region, except for Romania, where
surging wages continue to boost prices.
    The Czech and Romanian central banks have started to raise
interest rates to fight inflation, and some investors are
worried that Czech markets have priced in too much rate hike
expectation.
     A stronger crown can be only reached via further rate
increases, Raiffeisen analyst Stephan Imre said in a note.
However, he said, rate hike speculations may return in the
coming months and that could strengthen the crown.
     "We base our constructive view for CZGBs (Czech government
bonds), especially longer-dated ones, on this still intact CZK
(crown) appreciation story," he added.
    Romania's central bank is expected to deliver its next rate
hike next week, but that does not help government bonds because 
its tightening is not expected to boost the leu.
    Romanian bond yields mostly continued to rise on Wednesday,
bucking a regional trend of a modest drop.
    Polish yields dropped 1 to 2 basis points, with 10-year debt
 trading at 3.2 percent, after a strong auction on Tuesday. Low
supply is now expected in April, Bank Zachodni WBK analysts said
in a note.
    They said Polish assets could benefit if the European
Commission lifts a rule of law procedure against Poland after
the government  pledged to make changes in a judiciary reform
.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1008 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4750   25.4690    -0.02%    +0.26%
 crown      >                                       
 Hungary    <EURHUF=  312.6000  312.6900    +0.03%    -0.54%
 forint     >                                       
 Polish     <EURPLN=    4.2111    4.2080    -0.07%    -0.83%
 zloty      >                                       
 Romanian   <EURRON=    4.6570    4.6560    -0.02%    +0.49%
 leu        >                                       
 Croatian   <EURHRK=    7.4400    7.4405    +0.01%    -0.13%
 kuna       >                                       
 Serbian    <EURRSD=  118.4800  118.5400    +0.05%    +0.02%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1111.69  1115.060    -0.30%    +3.11%
                                       0            
 Budapest             37051.96  37300.96    -0.67%    -5.91%
 Warsaw                2206.53   2246.32    -1.77%   -10.35%
 Bucharest             8696.04   8740.63    -0.51%   +12.15%
 Ljubljana  <.SBITOP    822.26    826.11    -0.47%    +1.97%
            >                                       
 Zagreb                1819.35   1826.92    -0.41%    -1.28%
 Belgrade   <.BELEX1    744.99    746.82    -0.25%    -1.95%
            5>                                      
 Sofia                  651.02    655.25    -0.65%    -3.90%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8120   -0.0440   +141bps     -4bps
            R>                                      
   5-year   <CZ5YT=R    1.2800   -0.0040   +138bps     +1bps
            R>                                      
   10-year  <CZ10YT=    1.9180    0.0000   +144bps     +2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5100   -0.0140   +211bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.3780   -0.0160   +248bps     -1bps
            R>                                      
   10-year  <PL10YT=    3.2060   -0.0160   +273bps     +1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.98      1.08      1.23      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.16      0.03
                                                    
 Poland                   1.74      1.73      1.76      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting from Marcin Goclowski in Warsaw, editing
by Larry King)
  
 
 
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