November 2, 2017 / 10:59 AM / 3 years ago

CEE MARKETS-Crown hits 4-year high as Czech central bank seen hiking rates

    * Crown up as investors mull odds of 25 or 50 bps rate hike
    * Hungary, Polish PMIs show growth, currencies track EUR/USD
    * Budapest stocks hit record high on pre-earnings MOL gains
    * Kuna trades at weakest level since January

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Nov 2 (Reuters) - The crown hit a new
four-year high against the euro as some investors bet for a
bigger-than-consensus interest rate hike by the Czech central
bank (CNB) on Thursday.
    The crown hit its strongest level since October
2013 at 25.543 against the euro. At 0927 GMT, it traded at
25.551, firmer by 0.1 percent from Wednesday.   
    "I think there could be a test of 25.500 before the CNB
decision (due at 1200 GMT)," one Prague-based dealer said.
    While most analysts count on the bank lifting rates by a
standard 25 basis points, some central bankers have talked about
a bigger step, leading many investors to bet on a 50 basis point
    "I would say it is 50/50," a second dealer said.
    The crown was also supported by economic data showing
healthy growth in economic output, similar to other economies in
Central Europe.
    October figures released on Wednesday showed a jump in the
Czech PMI manufacturing sentiment index to 58.5, the highest in
more than six years. The surplus in the state budget rose to
this year's high.
    The Czech economy is seen remaining robust even though the
election winner ANO may need to form a minority government after
being shunned by other parties.
    While the CNB needs to fight inflation, which is above its 2
percent target, the key risk to the crown is how the central
bank will manage rate hike expectations, analysts have said.
    Hungary and Poland released October PMI figures on Thursday
which still indicated economic growth, though at a slightly
slower pace than in September.
    The forint and the zloty gave up some of
their early gains as the dollar firmed slightly.
    Polish government bond yields rose by a few basis points,
mirroring a similar rise in euro zone markets and because the
government announced a relatively high primary supply for the
rest of the year on Tuesday.
    "Apart from one regular auction, we will still have two
switch tenders this year, without an upper supply limit, so they
may be quite large," one Warsaw-based dealer said.
    Equities were mixed. Budapest's main index rose 1.5
percent, boosted by an almost 3 percent rise in the shares of
oil group MOL which analysts expect to report good
third-quarter earnings on Friday.
    The kuna was still the weakest against the euro
since mid-January as the end of the tourism season cut foreign
currency revenues and banks needed to increase hard currency
provisions related to indebted food group Agrokor's crisis.   
                CEE       SNAPSHOT  AT                  
                MARKETS               1027 CET          
                          Latest    Previous  Daily     Change
                          bid       close     change    in 2017
 Czech crown    <EURCZK=  25.5510   25.5735   +0.09%    5.70%
 Hungary        <EURHUF=  310.7600  310.8350  +0.02%    -0.62%
 forint         >                                       
 Polish zloty   <EURPLN=  4.2345    4.2376    +0.07%    4.00%
 Romanian leu   <EURRON=  4.5999    4.6030    +0.07%    -1.41%
 Croatian kuna  <EURHRK=  7.5325    7.5215    -0.15%    0.30%
 Serbian dinar  <EURRSD=  118.8500  118.9200  +0.06%    3.79%
 Note: daily    calculat  previous  close at  1800 CET  
 change         ed from                                 
                          Latest    Previous  Daily     Change
                                    close     change    in 2017
 Prague                   1066.86   1067.71   -0.08%    +15.76%
 Budapest                 40220.33  39611.64  +1.54%    +25.68%
 Warsaw                   2517.94   2524.90   -0.28%    +29.26%
 Bucharest                7837.64   7790.33   +0.61%    +10.62%
 Ljubljana      <.SBITOP  795.41    796.92    -0.19%    +10.84%
 Zagreb                   1867.91   1874.49   -0.35%    -6.36%
 Belgrade       <.BELEX1  729.79    732.12    -0.32%    +1.73%
 Sofia                    666.25    670.90    -0.69%    +13.61%
                          Yield     Yield     Spread    Daily
                          (bid)     change    vs Bund   change in
 Czech                                                  spread
 2-year         <CZ2YT=R  0.408     0.125     +116bps   +12bps
 5-year         <CZ5YT=R  0.681     -0.036    +102bps   -5bps
 10-year        <CZ10YT=  1.559     -0.01     +117bps   -3bps
 2-year         <PL2YT=R  1.63      0.017     +238bps   +2bps
 5-year         <PL5YT=R  2.729     0.082     +307bps   +7bps
 10-year        <PL10YT=  3.49      0.046     +311bps   +3bps
                FORWARD   RATE      AGREEMENT           
                          3x6       6x9       9x12      3M interbank
 Czech Rep                0.92      1.05      1.24      0
 Hungary                  0.09      0.12      0.15      0.03
 Poland                   1.785     1.845     1.935     1.73
 Note: FRA      are for                                 
 quotes         ask                                     
 (Additional reporting by Bartosz Chmielewski in Warsaw and Igor
Ilic in Zagreb; editing by Emelia Sithole-Matarise)
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