December 12, 2016 / 4:14 PM / 7 months ago

CEE MARKETS-Leu eases after Social Democrats win Romanian election

8 Min Read

* Leu eases, election winner PSD may keep fiscal policy
loose
    * Romanian stocks outperform, bonds seen facing political
risks
    * CEE bonds ease as Fed is seen lifting rates
    * Romania cuts 5-year bond auction

 (Adds Romanian bond auction, cancelled Czech auctions)
    By Sandor Peto
    BUDAPEST, Dec 12 (Reuters) - Romania's leu eased on Monday
while Bucharest stocks rose after the leftist Social Democrats
(PSD) won a parliamentary election on Sunday. 
    The PSD won about 46 percent of the vote, which could allow
them to form a stable government, but its loose fiscal policy
proposals have fuelled worries among investors.
    The leu slipped 0.1 percent to 4.5055 against the
euro by 1530 GMT, staying within the range near 4.5 of the last
two months, while other Central European currencies were mixed.
    The Bucharest stock index rose 0.8 percent. Warsaw's
blue-chip index continued to retreat from Thursday's
7-1/2-month peak, shedding 0.8 percent.
    Analysts said investor attention would now turn to the new
Romanian government's budget plans and whether it will tighten
fiscal policy to stop the budget deficit breaching the European
Union ceiling of 3 percent of economic output.
    "Markets might give the new government some time to come up
with fiscal countermeasures for 2017," Erste analysts said in a
note.
    The Social Democrats, who were driven from office a year ago
by protesters angry at corruption and abuse of power, have
advocated a programme which boosts wages and curbs value-added
taxes. 
    PSD's strong win averts the threat of difficult coalition
talks to form a government. 
    "Now it would be easy for PSD to form a (parliament)
majority," Raiffeisen analysts said in a note.
    Analysts said PSD's plans to further reduce taxes and social
contributions and to substantially increase public sector wages
and social transfers could push up Romanian government bond
yields, making Hungarian bonds relatively more attractive.
    But the leu, which is managed by the central bank, was seen
as unlikely to become very volatile.
    A Reuters poll of analysts indicated last week that the
central bank was unlikely to react quickly to a fiscal
loosening, but by late 2017 it may become the first of the
region's main central banks to hike rates. 
    Government bond yields were flat or rose slightly across the
region ahead of an expected U.S. interest rate rise on Wednesday
that would make emerging market assets relatively less
attractive.  
    Romania cut its offer at an auction of five-year government
bonds, selling the debt at a yield of 2.47 percent.
    Government budgets have been performing better than expected
in the region. The Czechs even cancelled this year's last bond
auction and a 39-week Treasury bill sale. 
    Hungary's parliament passed a law on Monday to cut corporate
taxes next year. 
    
           CEE MARKETS   SNAPSHOT     AT  1630 CET              
                         CURRENCIES                             
                         Latest      Previous   Daily    Change
                         bid         close      change   in 2016
 Czech                      27.0200    27.0395   +0.07%   -0.08%
 crown                                                   
 Hungary                   314.2000   314.7300   +0.17%    0.14%
 forint                                                  
 Polish                      4.4600     4.4544   -0.13%   -4.53%
 zloty                                                   
 Romanian                    4.5055     4.5017   -0.08%    0.30%
 leu                                                     
 Croatian                    7.5330     7.5322   -0.01%    1.41%
 kuna                                                    
 Serbian                   123.5000   123.3600   -0.11%   -1.64%
 dinar                                                   
 Note:     calculated    previous    close at   1800            
 daily     from                                 CET      
 change                                                  
                         STOCKS                                 
                         Latest      Previous   Daily    Change
                                     close      change   in 2016
 Prague                      905.43     900.71   +0.52%   -5.32%
 Budapest                  30535.63   30588.38   -0.17%   +27.65
                                                               %
 Warsaw                     1884.71    1899.76   -0.79%   +1.37%
 Buchares                   6951.39    6894.98   +0.82%   -0.76%
 t                                                       
 Ljubljan                    703.55     705.46   -0.27%   +1.06%
 a                                                       
 Zagreb                     1985.90    1982.98   +0.15%   +17.53
                                                               %
 Belgrade                    722.43     719.52   +0.40%   +12.16
                                                               %
 Sofia                       582.70     581.48   +0.21%   +26.43
                                                               %
                         BONDS                                  
                         Yield       Yield      Spread   Daily
                         (bid)       change     vs Bund  change
                                                         in
 Czech                                                   spread
 Republic                                                
   2-year                    -0.766     -0.052  -003bps    -7bps
   5-year                    -0.118      0.022   +030bp    +0bps
                                                      s  
                              0.571      0.007   +017bp    -4bps
 10-year                                              s  
 Poland                                                         
   2-year                     1.947          0   +269bp    -1bps
                                                      s  
   5-year                     2.901       0.03   +332bp    +1bps
                                                      s  
                              3.644      0.026   +324bp    -2bps
 10-year                                              s  
           FORWARD       RATE        AGREEMENT                  
                         3x6         6x9        9x12     3M
                                                         interba
                                                         nk
 Czech             <PRI        0.27       0.24     0.23        0
 Rep       BOR=>                                         
 Hungary           <BUB        0.36       0.39     0.48     0.39
           OR=>                                          
 Poland            <WIB       1.755       1.77     1.82     1.73
           OR=>                                          
 Note:     are for ask                                          
 FRA       prices                                        
 quotes                                                  
 **************************************************************
  

 (Reporting by Sandor Peto; Editing by Catherine Evans)

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