May 17, 2019 / 9:49 AM / 2 months ago

CEE MARKETS-Assets fall on global risk aversion, overheating fears

    * Toughness from China helps weaken currencies, stocks
    * Forint weakens through 325, zloty through 4.3 vs euro
    * Strong GDP and rising CPI fuel some overheating fear in
CEE
    * Possible Polish opposition win in EU vote seen as
political risk
 

    By Sandor Peto
    BUDAPEST, May 17 (Reuters) - Central European currencies and
stocks fell on Friday as tough comments from China in its trade
war with the United States fuelled risk aversion in global
markets.
    There were also fears that the region's economies could
become overheated and next week's European Parliament elections
could cause political tremors in Poland if the united opposition
beats the government.
    The forint and the zloty eased 0.2%
against the euro by 0840 GMT.
    The Hungarian unit crossed the 325 level, approaching
7-month lows reached on Wednesday, and the zloty returned to the
weak side of the 4.3 line, to trade at 4.3075.
    The Czech crown and the leu also eased.
    Budapest led a decline in most of the region's main
equity indexes, shedding 1%, while regional government bond
yields tracked the zigzags of Bunds.
    "The euro has also eased," one Budapest-based dealer
said. "But I would rather attribute the weakening (of CEE
currencies) to the global risk aversion, reflected in the
rebound of the (safe-haven) yen."
    The yen rose and stocks fell in global markets as the
Communist Party's People's Daily in China evoked the patriotic
spirit of past wars in a front page commentary, saying the trade
dispute with Washington will only make China stronger.
 
    The trade war, which has been the key driver of market
movements in the region in the past weeks, fuels worries about
global economic growth. 
    The main Central European economies released robust
first-quarter growth figures this week.
    But a rebound in inflation across the region this year,
driven by surging wages and a rise in global crude prices, leads
to fears of overheating.
    After a central bank rate hike in Prague and some tightening
in local currency liquidity in Budapest and Bucharest, no rate
tightening is on the horizon in the region as the European
Central bank is also seen retaining its loose policy.
    Polish data released on Thursday showed a jump in annual net
inflation to 1.7%, its highest level since late
2012.
    The central bank is not worried, as based on its comments
after its meeting on Wednesday, core inflation is only returning
to normal levels, Raiffeisen analyst Dorotha Strauch said.
    "Thus it seems the indicator would have to continue to rise
significantly to trigger a rate hike," she said in a note.
    The May 26 European Parliament election is a political risk
in Poland as a possible opposition victory could galvanize its
supporters ahead of general elections late this year and next
year's presidential elections, analysts have said.            
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1040 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7500   25.7260    -0.09%    -0.17%
 crown      >                                       
 Hungary    <EURHUF=  324.7000  324.1900    -0.16%    -1.11%
 forint     >                                       
 Polish     <EURPLN=    4.3075    4.2988    -0.20%    -0.42%
 zloty      >                                       
 Romanian   <EURRON=    4.7630    4.7600    -0.06%    -2.29%
 leu        >                                       
 Croatian   <EURHRK=    7.4255    7.4245    -0.01%    -0.21%
 kuna       >                                       
 Serbian    <EURRSD=  117.9900  117.9300    -0.05%    +0.26%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1050.82  1051.570    -0.07%    +6.51%
                                       0            
 Budapest             39895.98  40288.28    -0.97%    +1.93%
 Warsaw                2169.80   2188.43    -0.85%    -4.69%
 Bucharest             8216.69   8212.27    +0.05%   +11.28%
 Ljubljana  <.SBITOP    868.78    864.65    +0.48%    +8.02%
            >                                       
 Zagreb                1859.14   1850.45    +0.47%    +6.31%
 Belgrade   <.BELEX1    731.32    732.00    -0.09%    -3.99%
            5>                                      
 Sofia                  564.13    569.12    -0.88%    -5.10%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.5890   -0.1860   +224bps    -18bps
            R>                                      
   5-year   <CZ5YT=R    1.7140    0.0500   +223bps     +6bps
            R>                                      
   10-year  <CZ10YT=    1.8480    0.0290   +195bps     +4bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6910    0.0070   +235bps     +2bps
            R>                                      
   5-year   <PL5YT=R    2.2430   -0.0010   +276bps     +1bps
            R>                                      
   10-year  <PL10YT=    2.8910    0.0090   +299bps     +2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.22      2.22      2.18      2.20
            <PRIBOR=                                
            >                                       
 Hungary                  0.35      0.52      0.69      0.16
                                                    
 Poland                   1.74      1.76      1.77      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Alan Charlish in Warsaw;
Editing by Andrew Cawthorne)
  
 
 
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