March 9, 2017 / 11:09 AM / 7 months ago

CEE MARKETS-Czech crown eases in forwards on CPI rise, Polish stocks retreat

    * Czech CPI highest since 2012, above forecasts
    * Data fuel speculation for early crown cap exit
    * Forward deals reflect uncertainty over crown's outlook
    * Profit-taking continues in Warsaw stocks, zloty eases

 (Adds fall of Polish equities and zloty, new trader comments)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, March 9 (Reuters) - The Czech crown
exchange rate implied in six-month forward contracts eased to a
two-month low on Thursday, even as stronger-than-expected
February inflation fed expectations that the central bank would
soon abandon its cap on the currency.
    The Czech central bank said in late 2013 it would not let
the crown strengthen below 27 per euro, in a bid to
fend off deflation, meaning the spot exchange rate has been
stuck around that level.
    But inflation is quickly rebounding in Central Europe,
reaching the Czech central bank's 2 percent target by December
and potentially giving it room to lift the cap. In February,
annual inflation hit 2.5 percent, above analysts' 2.4 percent
forecast and the central bank's estimate.
    "(This) creates space for an end to the intervention regime
earlier than the middle of the year," said Patrik Rozumbersky,
economist at UniCredit in Prague.
    The bank has pledged to keep the cap through the first
quarter of this year, however, and only abandon it in "mid-2017"
- so potentially any time after April 1.
    But rather than expect a surge in the crown after the bank
lifts the cap, the market is uncertain which way it will go due
to the pile-up in crown buying in the market, and the
corresponding accumulation of central bank forex reserves.
    The central bank has boosted its forex reserves by 25
percent in the first two months of 2017 alone. It has warned
that the crown is heavily overbought and may fall rather than
firm up once the cap is lifted.
    The recent gradual weakening in crown six- and 12-month
forward contracts reflects market uncertainty, even though the
implied rates are still firmer than the cap level.
    The six-month implied rate touched a two-month
low at 26.9 after the inflation figures, and the 12-month rate
set a three-month low of 26.776.
    "We have seen some unwinding of speculative positions
because of fear that the trade is overcrowded and thus spoiled,"
one Prague-based trader said.
    "Speculators were a bit frightened by the size of buying
from the side of central bank and they became more aware of the
missing counterparty problem," the trader added.
    The yield on one-year Czech bonds fell 10 basis points to
-0.699 percent, indicating persistent strong demand, while the
yield is up from January's record lows at -1.268 percent.
    Elsewhere in the region, profit-taking after a regional
rally early this year abated in Hungary's stock market, allowing
Budapest's index to rise 0.9 percent, but continued in
Warsaw where the index fell 1.5 percent.
    The zloty shed 0.3 percent against the euro.
    
              CEE        SNAPS   AT  1603          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.05
                            00     45     2%      %
 Hungary                 311.2  311.1  -0.04  -0.79
 forint                    800    500      %      %
 Polish                  4.318  4.302  -0.39  1.97%
 zloty                       9      0      %  
 Romanian                4.550  4.541  -0.19  -0.33
 leu                         0      6      %      %
 Croatian                7.434  7.427  -0.09  1.63%
 kuna                        0      5      %  
 Serbian                 123.8  123.7  -0.04  -0.40
 dinar                     400    900      %      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  974.8  972.2   +0.2   +5.7
                             1      4     6%     7%
 Budapest                32851  32547   +0.9   +2.6
                           .14    .37     3%     5%
 Warsaw                  2180.  2213.  -1.48   +11.
                            42     24      %    94%
 Bucharest               7880.  7899.  -0.24   +11.
                            13     41      %    22%
 Ljubljana               788.5  785.0   +0.4   +9.8
                             8      2     5%     9%
 Zagreb                  2216.  2226.  -0.44   +11.
                            67     37      %    12%
 Belgrade     <.BELEX15  736.0  739.1  -0.42   +2.6
              >              0      3      %     0%
 Sofia                   621.0  622.4  -0.22   +5.9
                             8      7      %     1%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.69   -0.1   +015  -10bp
              >              9           bps      s
   5-year     <CZ5YT=RR  0.029  -0.01   +042  -5bps
              >                     6    bps  
   10-year    <CZ10YT=R  0.715  0.027   +029  -3bps
              R>                         bps  
 Poland                                            
   2-year     <PL2YT=RR  #VALU  -0.04  #VALU  -4bps
              >           E!        2   E!    
   5-year     <PL5YT=RR  #VALU  0.006  #VALU  -3bps
              >           E!            E!    
   10-year    <PL10YT=R  #VALU  0.013  #VALU  -5bps
              R>          E!            E!    
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <    0.3   0.33   0.41      0
              PRIBOR=>                        
 Hungary              <    0.3   0.42   0.58   0.23
              BUBOR=>                         
 Poland               <   1.77  1.775   1.84   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
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 (Additional reporting from Radu Marinas in Bucharest, Bartosz
Chmielewski in Warsaw; Editing by Gareth Jones)
 
 

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