May 29, 2018 / 1:15 PM / 3 months ago

CEE MARKETS-Stocks, fx hit year's lows on Italy and dollar rally

    * Main CEE currencies and indices hit weakest levels of 2018
    * Euro zone fears risks from Italian political turmoil
    * OTP Bank slide knocks Budapest stock index to one-year low

 (Recasts with further price falls, Citi trade idea)
    By Sandor Peto
    BUDAPEST, May 29 (Reuters) - Central European currencies and
stock indices slipped to their weakest levels this year and
government bond yields rose on Tuesday, hit by political turmoil
in Italy and Spain and the dollar's extended gains.
    Bank stocks led a fall which saw Warsaw's bluechip index
 dipping to a 16-month low and Budapest's a
12-month low.
    The forint, piercing the 320 level against the
euro, fell to a 2-year low, and the Czech crown,
trading at 25.912, reached its weakest levels since December, as
did Prague's main stock index.
    Regional assets have been knocked down this month as a rally
of the dollar and U.S. bond yields fuelled a sell-off in
emerging markets. 
    European markets were pricing in new negative factors.
    "The fresh factor which markets have to price in now is
Italy," one Budapest-based currency dealer said, adding that the
forint could firm if international markets calm down. Spanish
political uncertainty was also a worry. 
    Citigroup initiated a "trade idea of the week" to buy
dollars against a 50-50 basket of zloty and forint "as
a way to capitalise on EURUSD downside".
    "USDPLN and USDHUF trade respectively at 3.72 and 276.5. The
risks to the trade stem from the sudden cooling of the political
turmoil in Italy and Spain," Citi said in a research note.
    Italy's president blocked formation of a eurosceptic
government at the weekend but investors fear the country is
still drifting towards conflict with euro zone partners.
    The concerns hit bank stocks, which have heavy weightings in
national stock indices in Central Europe.
    Austrian-based regional banks Erste and Raiffeisen
 eased 3.4 and 2.5 percent in Vienna. Erste led a 1.5
percent fall in the main index of the Prague bourse, where
its is also listed.
    Warsaw-listed bank shares also fell 1.8 percent.
    Budapest's main index was knocked down by OTP Bank
, whose shares fell a further 1.9 percent. 
    A rise in government debt yields in the euro zone
peripheries also pushed Central Europe's yields higher, with
funds flowing into safer U.S. and German paper instead.
    Poland's 10-year yield rose 6 basis points to 3.25 percent.
Hungary's corresponding yield was fixed higher by 5 basis points
at 3.1 percent.  
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1441 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8850   25.7500    -0.52%    -1.33%
 crown      >                                       
 Hungary    <EURHUF=  319.3500  318.6200    -0.23%    -2.64%
 forint     >                                       
 Polish     <EURPLN=    4.3056    4.3001    -0.13%    -3.00%
 zloty      >                                       
 Romanian   <EURRON=    4.6450    4.6361    -0.19%    +0.75%
 leu        >                                       
 Croatian   <EURHRK=    7.3900    7.3940    +0.05%    +0.55%
 kuna       >                                       
 Serbian    <EURRSD=  118.0200  118.0900    +0.06%    +0.41%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1072.00  1088.800    -1.54%    -0.57%
                                       0            
 Budapest             34810.78  35373.59    -1.59%   -11.60%
 Warsaw                2178.41   2217.87    -1.78%   -11.49%
 Bucharest             8245.28   8263.10    -0.22%    +6.34%
 Ljubljana  <.SBITOP    903.38    903.35    +0.00%   +12.03%
            >                                       
 Zagreb                1847.20   1855.58    -0.45%    +0.23%
 Belgrade   <.BELEX1    740.88    744.43    -0.48%    -2.49%
            5>                                      
 Sofia                  637.25    639.30    -0.32%    -5.93%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.9310    0.0610   +167bps     +9bps
            R>                                      
   5-year   <CZ5YT=R    1.4040   -0.0030   +172bps     +2bps
            R>                                      
   10-year  <CZ10YT=    1.9480   -0.0220   +162bps     -1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5820   -0.0030   +232bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.4890    0.0580   +280bps     +9bps
            R>                                      
   10-year  <PL10YT=    3.2920    0.0810   +296bps    +10bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.02      1.16      1.26      0.91
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.29      0.38      0.12
                                                    
 Poland                   1.77      1.77      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

($1 = 275.8900 forints)

 (Additional reporting by Agnieszka Barteczko in Warsaw; Editing
by Andrew Roche)
  
 
 
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