March 9, 2020 / 10:18 AM / 3 months ago

CEE MARKETS-Stocks plunge as investors fret over oil prices, coronavirus toll

    By Anita Komuves
    March 9 (Reuters) - Central European stock indexes plunged
on Monday as tumbling oil prices and the anxiety over the
fast-spreading coronavirus hit markets globally after the number
of new infections and fatalities jumped in Italy over the
    The government of Italy announced a lockdown of its wealthy
Northern region on Sunday and urged and EU-wide package to ease
the economic effect of the outbreak.
    The Budapest and Bucharest stock indexes led
losses in the region after both dropped more than 8% by 0815
GMT. Prague lost 5.9% and Warsaw was down 6.5%.
As of 0930 GMT, the bourses recouped some of the deep losses.   
    Regional currencies also eased, with both the Hungarian
forint and the Czech crown down by more than
half a percent.  
    The forint still held up fairly well, staying clear of its
record lows of 340.60 to the euro, a level it hit two weeks ago.
The Hungarian currency outperformed its peers because investors
started to close their previously built carry-trade positions
last week. 
    The Czech crown hit its lowest level since last October and
was down around 1%, along with the rest of the region, even
before the bell, before regaining some ground. 
    However, dealers said trading would stay highly volatile
during the day. 
    "The start of the week is dominated by the crash in the oil
prices," Raiffeisen said in a note. Prices for crude oil dropped
more than 30% after OPEC countries were unable to agree on
production costs and Saudi Arabia launched a price war with
    "Lower oil prices can bring some relief to currently high
inflation rates in several CE/SEE countries." 
    Investors are keenly watching what measures central banks
and governments are willing to take to ease the economic blow
from the coronavirus outbreak. 
    Regional central bank officials expressed a cautious
approach last week, suggesting that they need more time to
assess the economic effects of the virus. 
    The Polish central bank left benchmark interest rates
unchanged at 1.5% at its rate-setting meeting last week. NBP
governor Adam Glapinski said at the time that interest rates
will remain stable, and the Monetary Policy Council (MPC) will
react calmly in the face of the coronavirus. 
    Two Polish MCP members have expressed different views since
    "Due to the significance of this threat, the possibility of
lowering interest rates in our country should be seriously
considered," Polish central banker Eryk Lon wrote for the
website of Polish religious radio station Radio Maryja. 

    Polish rate-setter Jerzy Zyzynski said he would favour a
rate cut of 50 basis points in May.
    On Monday, the Polish central bank's inflation projection
showed that it expects GDP growth to slow to 3.2% in 2020 from
4% in 2019. Inflation is forecast to rise to 3.7% in 2020 from
2.3% in 2019.
    Hungary's central bank, the most dovish in the region is off
the hook for rate hikes for now due to worries over the
coronavirus outbreak and its possible adverse effect on the
economies, analysts said. 
    Czech forward rate markets are betting the central bank
could reverse the surprise 50bps rate hike it announced on Feb 6
by the summer months.     
            CEE        SNAPSHOT    AT                         
            MARKETS               0915 CET            
                       Latest     Previous  Daily     Change
                       bid        close     change    in 2020
 Czech                   25.5510   25.4210    -0.51%    -0.47%
 Hungary                336.5000  334.6100    -0.56%    -1.59%
 Polish                   4.3182    4.3015    -0.39%    -1.43%
 Romanian                 4.8140    4.8125    -0.03%    -0.53%
 Croatian                 7.5090    7.5125    +0.05%    -0.85%
 Serbian                117.5700  117.6000    +0.03%    +0.00%
 Note:      calculated from                 1800 CET          
                       Latest     Previous  Daily     Change
                                  close     change    in 2020
 Prague                   906.02  962.8900    -5.91%   -18.79%
 Budapest               37870.59  41185.29    -8.05%   -17.82%
 Warsaw                  1649.84   1764.81    -6.51%   -23.27%
 Bucharest               8673.56   9445.03    -8.17%   -13.07%
 Ljubljana                882.14    882.23    -0.01%    -4.72%
 Zagreb                  1819.14   1819.14    +0.00%    -9.83%
 Belgrade   <.BELEX15     781.04    781.04    +0.00%    -2.58%
 Sofia                    529.93    529.93    +0.00%    -6.73%
                       Yield      Yield     Spread    Daily
                       (bid)      change    vs Bund   change
 Czech                                                spread
   2-year   <CZ2YT=RR     1.6380    0.0000   +256bps     +5bps
   5-year   <CZ5YT=RR     1.2510   -0.2010   +216bps    -17bps
   10-year  <CZ10YT=R     1.2090    0.0090   +204bps    +11bps
   2-year   <PL2YT=RR     1.2690    0.0040   +219bps     +6bps
   5-year   <PL5YT=RR     1.3370   -0.0750   +225bps     -4bps
   10-year  <PL10YT=R     1.6480   -0.0010   +248bps    +10bps
                       3x6        6x9       9x12      3M
 Czech Rep          <       2.03      1.64      1.38      2.34
 Hungary            <       0.73      0.74      0.73      0.66
 Poland             <       1.42      1.19      1.06      1.70
 Note: FRA  are for ask prices                                
 (Additional reporting by Jason Hovet in Prague; Editing by
Sherry Jacob-Phillips)
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