September 10, 2018 / 9:45 AM / 10 months ago

CEE MARKETS-Crown firms as Czech inflation picks up

    * 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 (Reuters) - 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
    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            
                      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          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1078.47  1070.200    +0.77%    +0.03%
 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%
 Sofia                  627.52    626.99    +0.08%    -7.37%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.4760    0.1400   +203bps    +13bps
   5-year   <CZ5YT=R    1.7800    0.0500   +199bps     +3bps
   10-year  <CZ10YT=    2.1510    0.0310   +174bps     +1bps
   2-year   <PL2YT=R    1.6440    0.0040   +220bps     -1bps
   5-year   <PL5YT=R    2.6250    0.0160   +283bps     +0bps
   10-year  <PL10YT=    3.3040    0.0170   +290bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.88      2.01      2.12      1.51
 Hungary                  0.57      0.78      1.00      0.20
 Poland                   1.76      1.81      1.84      1.71
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest;
Editing by Alison Williams)
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