May 28, 2018 / 9:43 AM / a month ago

CEE MARKETS-Zloty, forint regain some ground on Italy, remain fragile

    * Less pressure on euro due to Italy helps forint, zloty
    * Gains may become futile as dollar continues to firm
    * Polish CPI rise would not change cbank policy -analysts

    By Sandor Peto
    BUDAPEST, May 28 (Reuters) - Central Europe's most liquid
currencies and some of its government bonds firmed on Monday
after efforts to form an Italian government with a eurosceptic
economy minister collapsed over the weekend, which was seen as
market-positive.
    The zloty gained 0.3 percent to 4.2967 per euro by
0840 GMT, breaking through the 4.3 line, while the forint
 gained 0.1 percent to 318.90. 
    The Italian developments gave some support in early trade to
the euro against the dollar, a cross that is being closely
watched in the European Union's eastern markets after a sell-off
this month driven by a rally in the dollar and U.S. debt yields.
    The region's main currencies continue to trade near
multi-month lows and regional markets remain fragile, market
participants said, with the euro retreating after initial gains
behind the 1.7 line against the dollar. 
    Regional stock markets were mixed.
    "It is possible that the relief will be fragile as after the
Italians, storm clouds are gathering around the Spanish
government as well," Erste analysts said in a note.
    Spanish Prime Minister Mariano Rajoy could face a
no-confidence vote in Parliament.
    Poland's 10-year government bond yield dropped 2 basis
points to 3.175, while Hungarian bond yields were flat.
    "With populist parties so strong in Italy, I do not know
what a new election could help there," one Budapest-based fixed
income trader said.
    Hungary's government bond market, a big regional
outperformer in the past year, has taken the worst hit from this
month's emerging market sell-off.
    Last week's retreat in Hungarian yields may continue, and
the forint could drift further off 23-month lows versus the
euro, if the dollar does not resume its rally, dealers and
analysts said.
    Polish bonds continued to recover.
    May inflation figures for Poland on Wednesday could show a
rise in the annual rate from 1.6 percent in April, but the
figures are unlikely to change the bank's stance of keeping
monetary conditions loose, analysts said.
    A retreat in global crude prices is helping keep inflation
expectations moderate, they said.    
    The Czech crown, often more heavily influenced by
expectations for the timing and size of central bank (CNB) rate
tightening than global factors, eased 0.1 percent against the
euro.
    It gave up some ground after a rise on Friday when CNB
Governor Jiri Rusnok said its weakness may bring forward the
next interest rate hike.
    The leu, a currency more closely managed by the
central bank than its main regional peers, eased slightly in
international trade, with Romanian markets closed for holiday.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1040 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7350   25.7020    -0.13%    -0.75%
 crown      >                                       
 Hungary    <EURHUF=  318.9000  319.3000    +0.13%    -2.50%
 forint     >                                       
 Polish     <EURPLN=    4.2967    4.3096    +0.30%    -2.80%
 zloty      >                                       
 Romanian   <EURRON=    4.6350    4.6290    -0.13%    +0.96%
 leu        >                                       
 Croatian   <EURHRK=    7.3890    7.3903    +0.02%    +0.56%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1500    +0.08%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1091.40  1087.500    +0.36%    +1.23%
                                       0            
 Budapest             35656.28  35758.06    -0.28%    -9.45%
 Warsaw                2224.31   2213.24    +0.50%    -9.63%
 Bucharest             8263.10   8263.10    +0.00%    +6.57%
 Ljubljana  <.SBITOP    905.96    903.67    +0.25%   +12.35%
            >                                       
 Zagreb                1860.56   1860.12    +0.02%    +0.96%
 Belgrade   <.BELEX1    742.44    743.16    -0.10%    -2.28%
            5>                                      
 Sofia                  642.53    642.09    +0.07%    -5.15%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.9250    0.0560   +158bps     +6bps
            R>                                      
   5-year   <CZ5YT=R    1.4510    0.0440   +166bps     +4bps
            R>                                      
   10-year  <CZ10YT=    1.9670   -0.0100   +155bps     -2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5740   -0.0270   +223bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.4310   -0.0200   +264bps     -2bps
            R>                                      
   10-year  <PL10YT=    3.2030    0.0040   +279bps     +0bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.03      1.17      1.28      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.39      0.12
                                                    
 Poland                   1.74      1.76      1.81      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Catherine Evans)
  
 
 
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