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Marcin Goclowski

CEE MARKETS-Crown firms as Czech inflation picks up

Sep 10 2018

* Czech CPI picks up more than expected, crown firms * Czech central banker says crown fx rates are inflationary * U.S. data initially weigh on forint and zloty By Sandor Peto and Marcin Goclowski BUDAPEST/WARSAW, Sept 10 The crown firmed on Monday, outperforming most Central European peers, after Czech inflation data showing a bigger-than-expected pick-up fuelled expectations for rate hikes from the Czech central bank (CNB). The zloty was flat, and the forint slightly firmer at 0916 GMT, regaining ground after an initial weakening caused by Friday's U.S. payroll figures which maintained the possibility of faster Federal Reserve interest rates hikes. Higher Fed rates make assets relatively less attractive in Hungary and Poland where the central banks keep interest rates at record lows. Czech debt yields stay below U.S. levels even though the CNB has increased its benchmark rate five times since August 2017. But Monday's inflation figures and other Czech data showing record vacancies in the European Union's tightest labour market underpinned expectations for further hikes in the 1.25 percent rate. Annual inflation accelerated to 2.5 percent in August from July 2.3 percent due to rising rents and utility costs, above analysts' 2.4 percent forecast and the CNB's 2 percent target. Czech central banker Vojtech Benda was quoted as saying on Monday that the crown's exchange rate was developing in an inflationary direction, meaning the currency was too weak. The unit firmed 0.2 percent against the euro after the data and the comments, to 25.64. "We see a relatively high probability" that the CNB will hike rates again at its Sept. 26 meeting, Erste analyst Jan Zemlicka said in a note. The bank could raise rates twice in the rest of 2018, if the crown remains weak, and two more increases could be in the pipeline in 2019, Zemlicka added. Elsewhere, the leu also firmed slightly as the central bank held a repo auction, staying though within the past two weeks ranges. The government is likely to sell the 5-year bonds offered at an auction near secondary market levels around 4.34 percent, ING analysts said in a note. Romania is due to release August inflation data on Tuesday. The annual figure is expected to pick up to 4.8 percent due to a hike in household gas prices, after a slump to 4.6 percent in July from June's 5.4 percent, the region's highest level. Regional stocks were mostly rangebound. Shares in the EU's biggest coking coal producer, state-run JSW fell 8 percent after Rzeczpospolita daily reported its Chief Executive Officer Daniel Ozon may lose his job. The paper also quoted Ozon as saying that he faced a pressure to invest in another state-run company - construction firm Polimex Mostostal. The latter firm's shares rose 6.6 percent on the report, brokers said. CEE SNAPSHOT AT MARKETS 1116 CET CURRENCI ES Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.6400 25.6800 +0.16% -0.38% crown > Hungary <EURHUF= 324.5500 325.0500 +0.15% -4.20% forint > Polish <EURPLN= 4.3100 4.3101 +0.00% -3.10% zloty > Romanian <EURRON= 4.6335 4.6408 +0.16% +1.00% leu > Croatian <EURHRK= 7.4195 7.4243 +0.06% +0.15% kuna > Serbian <EURRSD= 118.2600 118.3000 +0.03% +0.20% dinar > Note: calculated from 1800 CET daily change Latest Previous Daily Change close change in 2018 Prague 1078.47 1070.200 +0.77% +0.03% 0 Budapest 37201.49 37189.98 +0.03% -5.53% Warsaw 2269.74 2257.30 +0.55% -7.78% Bucharest 8313.03 8304.71 +0.10% +7.21% Ljubljana <.SBITOP 857.47 857.16 +0.04% +6.34% > Zagreb 1802.78 1806.53 -0.21% -2.18% Belgrade <.BELEX1 723.65 724.72 -0.15% -4.76% 5> Sofia 627.52 626.99 +0.08% -7.37% BONDS Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republic 2-year <CZ2YT=R 1.4760 0.1400 +203bps +13bps R> 5-year <CZ5YT=R 1.7800 0.0500 +199bps +3bps R> 10-year <CZ10YT= 2.1510 0.0310 +174bps +1bps RR> Poland 2-year <PL2YT=R 1.6440 0.0040 +220bps -1bps R> 5-year <PL5YT=R 2.6250 0.0160 +283bps +0bps R> 10-year <PL10YT= 3.3040 0.0170 +290bps +0bps RR> FORWARD RATE AGREEMEN T 3x6 6x9 9x12 3M interban k Czech Rep 1.88 2.01 2.12 1.51 <PRIBOR= > Hungary 0.57 0.78 1.00 0.20 Poland 1.76 1.81 1.84 1.71 Note: FRA are for ask prices quotes ************************************************* ************* (Additional reporting by Luiza Ilie in Bucharest; Editing by Alison Williams)

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