March 27, 2017 / 11:24 AM / 4 months ago

CEE MARKETS-Crown firms in forward deals, Czechs add bond auctions

7 Min Read

    * Czech crown firmer in forwards, central bank cap seen near
end
    * Czechs add two bond auctions to benefit from low yields
    * Pro-EU ruling party wins Bulgarian elections, Sofia stocks
up
    * CEE stocks, bond yields fall as trust in Trump stimulus
cracks

 (Adds new headline, paragraph on additional Czech bond
auctions)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, March 27 (Reuters) - The crown firmed in
forwards deals on Monday as Czech markets started their final
week before the central bank's "hard commitment" to keep its
exchange rate floor in place expires.
    The end of the commitment on March 31 leaves the chance of
an exit coming at any time.
    The bank introduced the cap, which keeps the crown
weaker than 27 against the euro in the spot market, in late 2013
to fight deflation risks.
    Inflation is back around the bank's 2 percent target and
most analysts expect an exit from the "weak crown" regime in
April or May.
    With the exit likely getting nearer, the government added
two extra auctions to its March calendar to take advantage of
financing from bonds that can be sold at low yields.
 
    In one-month forward contracts, the crown
firmed to 26.935 against the euro, approaching four-month highs
touched last week. 
    The Czech economy's sound fundamentals are expected to put
the currency on a strengthening trajectory, even though its
movement just after the cap is abandoned is unpredictable.
    The central bank has pledged to not remove the cap before
the end of the first quarter while signalling it will likely let
the crown free around the middle of the year. 
    But markets and analysts see the exit coming as soon as next
week due to inflation running above target and massive flows of
speculative money coming into the market, making the central
bank intervene in volumes outpacing all of last year. 
    "Clearly the market opinionates (the FX) floor will be
abandoned within a month," one dealer said. 
    "I don't see many reasons for the central bank to keep its
intervention regime further. The economy is doing well and they
have fulfilled what they promise. It is a good opportunity to
leave now," the dealer added.
    Czech government bond yields and equities followed a
regional trend of decline.
    Risk appetite declined, similarly to global trends, after
confidence in new U.S. President Donald Trump's ability to
deliver his agenda took a blow when he failed to push through a
healthcare reform bill. 
    Warsaw led a decline of stocks. Its blue-chip index
shed 1.9 percent by 1325 GMT.
    Sofia was almost steady, outperforming the region.
    In preliminary results of Sunday's Bulgarian elections, the
pro-European Union ruling centre-right GERB party led, scoring
32.58 percent, ahead of the pro-Russian Socialist party with
26.8 percent.
    "Therefore, fears about a change in the overall policy
course and possibly a somewhat more pro-Russia stance should
abate soon," said Raiffeisen analyst Gunter Deuber in a note.   
              CEE        SNAPS   AT  1525          
              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     00     0%      %
 Hungary                 309.6  309.9   +0.1  -0.26
 forint                    300    700     1%      %
 Polish                  4.255  4.261   +0.1  3.49%
 zloty                       2      9     6%  
 Romanian                4.549  4.552   +0.0  -0.32
 leu                         5      0     5%      %
 Croatian                7.440  7.419  -0.28  1.55%
 kuna                        0      5      %  
 Serbian                 123.8  123.9   +0.0  -0.41
 dinar                     600    500     7%      %
 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                  977.6  982.5  -0.49   +6.0
                             7      3      %     8%
 Budapest                31804  32097  -0.91  -0.62
                           .91    .09      %      %
 Warsaw                  2191.  2234.  -1.92   +12.
                            81     82      %    52%
 Bucharest               7965.  7981.  -0.20   +12.
                            04     01      %    42%
 Ljubljana               791.1  791.7  -0.08   +10.
                             1      1      %    25%
 Zagreb                  2094.  2112.  -0.87   +5.0
                            53     83      %     0%
 Belgrade     <.BELEX15  744.4  746.1  -0.22   +3.7
              >              9      2      %     8%
 Sofia                   639.1  639.6  -0.07   +9.0
                             8      3      %     0%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.48  -0.08   +023  -11bp
              >              1      8    bps      s
   5-year     <CZ5YT=RR  0.207  -0.02   +053  -1bps
              >                     7    bps  
   10-year    <CZ10YT=R  0.983  -0.02   +061   +2bp
              R>                    3    bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.049  0.008   +276  -1bps
              >                          bps  
   5-year     <PL5YT=RR   2.93  -0.04   +325  -3bps
              >                     1    bps  
   10-year    <PL10YT=R  3.518  -0.05   +315  -1bps
              R>                    1    bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.29   0.32    0.4      0
              PRIBOR=>                        
 Hungary              <   0.27   0.34   0.46   0.21
              BUBOR=>                         
 Poland               <   1.77   1.79   1.84   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
        

 (Writing by Sandor Peto; Editing by Keith Weir and Ed Osmond)
  
 
 

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