June 8, 2018 / 9:38 AM / 9 months ago

CEE MARKETS-Zloty leads currency weakening, Hungarian inflation picks up

    By Krisztina  Than
    BUDAPEST, June 8 (Reuters) - Central European currencies
eased on Friday as risk appetite ebbed across world markets and
Hungarian data showing higher-than-expected May headline
inflation injected a further element of uncertainty in jittery
local markets.
    The region's bonds have already been hit by comments from
European Central Bank Chief Economist Peter Praet, who said on
Wednesday that inflation was on its way back to target and that
the ECB might reveal more about the end of its asset buying
programme next week.
    Less stimulus from the ECB could be negative for assets in
Central European markets, while interest rates in the United
States are on the rise. 
    "Sentiment has soured today," a Budapest-based dealer said.
    The region's main currencies already hit multi-month lows
against the euro last month as investors reshuffled positions
amid a global dollar rally.
    "EEMEA has suffered from the recent strengthening of the
dollar and this remains a key driver of near-term performance.
Risks also remain in the form of higher US rates," analysts at
Bank of America Merrill Lynch said in a note on Friday.
    Risk appetite waned after U.S. jobless claims pointed to a
further tightening in labour market conditions, cementing
expectations the Federal Reserve will raise benchmark U.S. rates
next week and twice again later in the year.
    On Friday the forint and the zloty both
weakened, by 0.3 percent and 0.5 percent respectively. The crown
 also eased half a percent by 0813 GMT.
    Hungarian inflation rose to an annual 2.8
percent in May from 2.3 percent year-on-year in April and came
in above analysts' 2.7 percent forecast. A rise in fuels prices
played a big role in boosting headline inflation.
    Peter Virovacz, an analyst at ING, said the CPI data had no
substantial market impact but the National Bank of Hungary (NBH)
will be closely watched at its next meeting on June 19 when it
is due to publish its fresh inflation forecasts.
    "The central bank is between a rock and a hard place," he
    Virovacz said the NBH had calculated with lower crude prices
when it prepared its previous forecast, so he expected the NBH's
CPI projections to rise.
    The NBH has pledged to keep monetary conditions loose for an
extended period, and has so far not reacted to a weakening of
the forint and rising government bond yields. 
    But Virovacz said markets were more and more positioned
towards some kind of tightening move by the NBH.
    "I think the way the NBH has been trying to sit out the
market turbulence so far, it will not react to the rising fuels
prices either," he said.
    Reuters surveys showed on Thursday that the dollar's
dominance could soon fade, while Central Europe's most liquid
units could strengthen over the next year. 
    In Romania, investors will watch a decision by Romania's top
court expected on Friday in the trial of Social Democrat leader
Liviu Dragnea on charges of abuse of office -- a case that could
weaken the country's most powerful politician and open cracks in
the ruling party if he is convicted.
    Stock markets fell across the region, tracking other
European markets.
            CEE        SNAPSHOT   AT                         
            MARKETS              1013 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2018
 Czech                  25.8390   25.7215    -0.45%    -1.15%
 Hungary               319.5400  318.5600    -0.31%    -2.70%
 Polish                  4.2905    4.2694    -0.49%    -2.66%
 Romanian                4.6600    4.6584    -0.03%    +0.42%
 Croatian                7.3830    7.3853    +0.03%    +0.64%
 Serbian               117.9100  118.0300    +0.10%    +0.50%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2018
 Prague                 1078.22  1078.380    -0.01%    +0.01%
 Budapest              36837.21  37401.25    -1.51%    -6.45%
 Warsaw                 2251.12   2270.75    -0.86%    -8.54%
 Bucharest              8193.05   8284.58    -1.10%    +5.67%
 Ljubljana               902.48    899.45    +0.34%   +11.92%
 Zagreb                 1833.41   1830.83    +0.14%    -0.51%
 Belgrade   <.BELEX15    738.79    740.81    -0.27%    -2.77%
 Sofia                   632.48    631.71    +0.12%    -6.64%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    1.0020   -0.0030   +167bps     +3bps
   5-year   <CZ5YT=RR    1.5100    0.0970   +173bps    +16bps
   10-year  <CZ10YT=R    2.0610    0.0000   +165bps     +7bps
   2-year   <PL2YT=RR    1.5960    0.0010   +227bps     +3bps
   5-year   <PL5YT=RR    2.5030    0.0260   +272bps     +9bps
   10-year  <PL10YT=R    3.3200    0.0290   +290bps    +10bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      1.15      1.30      1.41      0.00
 Hungary            <      0.22      0.30      0.39      0.12
 Poland             <      1.74      1.77      1.83      1.70
 Note: FRA  are for ask prices                               

 (Reporting by Krisztina Than; Editing by Toby Chopra)
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