September 4, 2017 / 10:56 AM / a year ago

CEE MARKETS-Risk aversion weakens stocks, forint; Czech assets resist

    * Fitch outlook lift helps crown, Czech assets buck risk
    * Robust growth figures support central European markets
    * Hungary cbank minutes, CPI data, eyed for policy guidance

    By Sandor Peto
    BUDAPEST, Sept 4 (Reuters) - An upgrade in the sovereign
rating outlook from Fitch helped Czech assets on Monday buck a
decline in other Central European markets as risk aversion
gripped investors after a nuclear test in North Korea.
    Sunday's test of what Pyongyang said was an advanced
hydrogen bomb for a long-range missile prompted the United
States to warn of a "massive" military response if it or allies
were threatened and triggered a global flight to safer assets.
    That also affected Central Europe on Monday although recent
robust economic figures from the region, where markets shook off
tensions over North Korea last month, continue to be supportive
of local assets.
    Credit rating agency Fitch late on Friday revised its
outlook on the Czech Republic's 'A+' rating to positive from
stable, citing a marked improvement in the country's fiscal
    Prague stocks were steady on Monday, while Budapest's
main index shed 0.6 percent, Bucharest 0.5 percent and
Warsaw 0.2 percent by 0936.
    The crown was a shade firmer, at 26.055 against
the euro.
    The currency was also being helped by last week's figures
showing a record three-month rise in economic growth in the
second quarter and expectations that the Czech central bank
(CNB) will continue to lift interest rates.
    "We expect a 25 bps hike on 27 September; and if there is no
moderation in indicators over coming month, then another 25 bps
in early November as well," Commerzbank analysts said.
    They said in a note that the rate hike expectations only
sporadically strengthen the crown as every move higher triggers
profit-taking from investors who bought huge amounts of crowns
before the CNB removed a cap on the currency in April.   
    The forint shed 0.2 percent to 306.10, while the
zloty reversed an early weakening and strengthened by
0.1 percent to 4.251.
    The Hungarian central bank knocked the forint down from
28-month highs two weeks ago with a verbal intervention, and
investors will scrutinise minutes on Wednesday of its last
rate-setting meeting for any reinforcement of its dovish
    "If not the minutes, then the inflation data due on Friday
will be watched," said Zoltan Varga, analyst at Equilor
    Robust regional economic growth has not boosted inflation
above central bank targets except in the Czech Republic, which
has the lowest goal at 2 percent.
    The Polish central bank is expected to keep interest rates
on hold at its meeting on Wednesday and until the last quarter
of 2018, but negative real interest rates and a labour shortage
may increase worries over inflation later this year.
    "Rate hike speculation and the benign fundamental economic
conditions could support some PLN (zloty) recovery over the
coming months," Raiffeisen analysts said in a note.
    Moody's is due to review Poland's sovereign rating on Friday
and investors are watching to see if that improves the outlook
for the currency. On Monday, Moody's raised its economic growth
forecast for Poland.
               CEE MARKETS  SNAPSH   AT  1136 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                26.055  26.060   +0.02   3.65%
                                 0       0       %  
 Hungary                    306.10  305.54  -0.18%   0.89%
 forint                         00      50          
 Polish zloty               4.2510  4.2559   +0.11   3.60%
 Romanian leu               4.5955  4.5955   +0.00  -1.32%
 Croatian                   7.4140  7.4231   +0.12   1.90%
 kuna                                            %  
 Serbian                    119.50  119.08  -0.35%   3.22%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1022.6  1021.9   +0.06   +10.9
                                 1       7       %      6%
 Budapest                   37479.  37719.  -0.64%   +17.1
                                47      90              1%
 Warsaw                     2522.7  2527.6  -0.19%   +29.5
                                 5       2              1%
 Bucharest                  8077.0  8119.7  -0.53%   +14.0
                                 8       6              0%
 Ljubljana                  814.59  814.51   +0.01   +13.5
                                                 %      2%
 Zagreb                     1899.2  1896.9   +0.12  -4.79%
                                 5       4       %  
 Belgrade                   725.26  724.71   +0.08   +1.10
                                                 %       %
 Sofia                      711.91  710.31   +0.23   +21.4
                                                 %      0%
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                   -0.048  -0.022   +069b   -2bps
   5-year                    0.069       0   +041b   +1bps
   10-year                   0.888   0.006   +052b   +2bps
   2-year                   #VALUE   0.006  #VALUE   +1bps
                              !               !     
   5-year                    2.628  -0.007   +297b   +0bps
   10-year                   3.298  -0.002   +293b   +1bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.66     0.8    0.89       0
 Hungary               <BU    0.21    0.25    0.31    0.15
 Poland                <WI    1.77    1.81    1.85    1.73
 Note: FRA     are for ask                                
 quotes        prices                               

 (Additional reporting by Jason Hovet in Pargie/Bartosz
Chmielewski in Warsaw; Editing by Catherine Evans)
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