November 7, 2018 / 11:33 AM / 10 months ago

CEE MARKETS-Zloty hits 2-week high, Czech crown underperforms

    * Dollar retreat on U.S. vote helps most CEE currencies
    * Polish central bank seen keeping rates, loose stance on
    * Warsaw leads regional stock rally
    * Crown misses out on firming, hits 5-month low against the

    By Sandor Peto
    BUDAPEST, Nov 7 (Reuters) - The zloty reached a two-week
high against the euro, benefiting from a retreat of the dollar
on global markets, even though the Polish central bank is
expected to retain its loose policy at its meeting on Wednesday.
    The dollar fell in its major crosses, including the
euro which is closely watched in Central Europe's
emerging markets, after significant gains in U.S. midterm
elections by the Democrats.
    Stocks in the region and on Western exchanges rose as the
likelihood of more fiscal stimulus to the U.S. economy fell,
which could mean fewer Federal Reserve interest rate increases
than expected.
    Warsaw's bluechip stock index jumped almost 2
percent by 1031 GMT to a five-week high, led by rises of about 3
percent in the shares of banks PKO and Pekao.
    The indices of Budapest and Prague gained 1.2
    The zloty strengthened by a quarter of a percent
to 4.2942 versus the euro, while the forint gained 0.1
percent to trade at 321.55, approaching three-month highs.
    The Polish central bank (NBP) is expected to keep its
benchmark rate on hold at 1.5 percent at the meeting.
    Polish inflation remains below the midpoint of the NBP's
1.5-3.5 percent target range, even though the economy is seen
growing robustly despite some recent signs that the pace is
    NBP Governor Adam Glapinski said after last month's policy
meeting that interest rates should remain unchanged until at
least 2019, and it would be a surprise if the bank shifted to a
more hawkish stance on Wednesday, analysts said.
    Poland's 10-year government bond yield dropped 2 basis
points to 3.1565 percent, staying below the corresponding U.S.
yield which shed 3 basis points to 3.181 percent.
    "Potential repatriation moves by USD-based bond investors –
representing a significant investor group in POLGBs – is the
major risk to our mildly bullish call," Raiffeisen analyst
Stephan Imre said in a note
    The Czech crown missed out on the regional
currency strengthening, trading flat at 25.86 versus the euro.
    It even touched a 5-month low on its cross with the forint
 despite four straight interest rate increases by the
Czech central bank (CNB), the last one delivered a week ago.
    Hungary's central bank, like Poland's, has kept interest
rates at record lows.
    But the forint is oversold, while investors still hold a
huge amount of positions in the crown which they bought before
the CNB removed a cap on the currency last year, analysts said.
    "While the market positioning still makes the Czech crown
vulnerable... it seems that the market was mostly short in case
of the HUF and this is technically positive for the Hungarian
currency," said Radomir Jac, Chief Economist of Generali
Investment CEE in Prague.
            CEE       SNAPSHOT   AT                         
            MARKETS             1131 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8600   25.8580    -0.01%    -1.23%
 crown      >                                       
 Hungary    <EURHUF=  321.5500  321.8400    +0.09%    -3.31%
 forint     >                                       
 Polish     <EURPLN=    4.2942    4.3045    +0.24%    -2.74%
 zloty      >                                       
 Romanian   <EURRON=    4.6611    4.6635    +0.05%    +0.40%
 leu        >                                       
 Croatian   <EURHRK=    7.4325    7.4375    +0.07%    -0.03%
 kuna       >                                       
 Serbian    <EURRSD=  118.2400  118.3600    +0.10%    +0.22%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1079.35  1066.150    +1.24%    +0.11%
 Budapest             38127.91  37666.00    +1.23%    -3.17%
 Warsaw                2273.60   2230.34    +1.94%    -7.62%
 Bucharest             8638.43   8618.62    +0.23%   +11.41%
 Ljubljana  <.SBITOP    803.39    797.18    +0.78%    -0.37%
 Zagreb                1780.63   1776.39    +0.24%    -3.38%
 Belgrade   <.BELEX1    747.34    741.91    +0.73%    -1.64%
 Sofia                  594.12    594.29    -0.03%   -12.30%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6630    0.0020   +230bps     +0bps
   5-year   <CZ5YT=R    1.8670    0.0300   +203bps     +3bps
   10-year  <CZ10YT=    2.1400    0.0030   +171bps     +1bps
   2-year   <PL2YT=R    1.5340   -0.0070   +217bps     -1bps
   5-year   <PL5YT=R    2.4290   -0.0010   +259bps     +0bps
   10-year  <PL10YT=    3.1760   -0.0030   +275bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.20      2.35      1.97
 Hungary                  0.32      0.58      0.93      0.16
 Poland                   1.77      1.81      1.89      1.72
 Note: FRA  are for ask prices                              
 (editing by David Stamp)
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