January 4, 2018 / 10:48 AM / in a year

CEE MARKETS-Banks help boost stock indices, zloty leads fx gains

    * DB upgrade boosts Erste, Prague stock index at 6-1/2-yr
    * Financial sector stocks drive rally in Warsaw bourse
    * Zloty hits 2-1/2-year high despite CPI fall
    * Weak dollar underpins Central European currencies

    By Sandor Peto
    BUDAPEST, Jan 4 (Reuters) - Financial sector stocks helped
lift Central European stock indices on Thursday on optimism
about the region's booming economic output and strong U.S. and
German data.
    Prague's main stock index hit its highest since the
summer of 2011, rising 1.2 percent, driven by a 4.3 percent jump
in the stocks of Austria-based regional bank Erste.
    The stock surged after Deutsche Bank upgraded Erste to "buy"
from "hold", saying growth was strong in the key economies of
the region amid rising inflation and accelerating loan growth.

    "The view that interest rates will start to rise (in some
countries in the region)... buoys banks stocks," said Monika
Kiss, analyst of Equilor in Budapest.
    "In Warsaw, a consolidation of the sector also helps
financial sector stocks, with funds reassessing their
investments," she added.
    Analysts said the gains of the Warsaw bourse were bigger
than elsewhere because it reopened after the year-end holiday
with a one day delay compared to many other bourses.
    "It seems that we observe the delayed effect of a positive
start of the year on most equity markets, including emerging
markets, since MSCI EM at the beginning of year reached a new
peak," said DM BOS analyst Lukasz Bugaj. 
    Warsaw's blue-chip index rose two percent,
outperforming the MSCI's broadest index of Asia-Pacific shares
outside Japan, similar to the Nikkei of
Tokyo which also reopened for 2018 with a delay.
    Warsaw's rise was led by insurer PZU, and two
banks, PKO BP and BZ WBK.
    The zloty, Central Europe's most liquid currency,
also outperformed regional peers, rising 0.1 percent to 4.152
against the euro, slightly off 2-1/2-year highs touched early on
    Regional currencies have firmed in the year's first
sessions, even though Polish data released on Wednesday showed a
bigger-than-expected decline in annual inflation in December to
two percent, discouraging expectations of Polish central bank
interest rate hikes late this year.
    The weakness of the dollar, however, has fuelled market
appetite for the region's currencies, even the forint
of Hungary where the central bank has continued to stimulate the
economy with unconventional tools. 
    It is due to launch its new long-term interest rate swaps
for banks on Jan. 18, which can help long-term market interest
rates fall further, traders said.
    Forint interest rate swaps in the market
consolidated on Thursday after 5-10 basis point decline in 5- to
10-year tenors on Wednesday.
    "Early-year illiquidity enlarged that movement," one
Budapest-based fixed income trader said, adding though that
long-term yields already trading at record lows may have some
further room to decline.   
            CEE       SNAPSHOT   AT                         
            MARKETS             1047 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5150   25.5155    +0.00%    +0.11%
 crown      >                                       
 Hungary    <EURHUF=  308.6700  308.6550    -0.00%    +0.73%
 forint     >                                       
 Polish     <EURPLN=    4.1500    4.1556    +0.13%    +0.63%
 zloty      >                                       
 Romanian   <EURRON=    4.6295    4.6255    -0.09%    +1.08%
 leu        >                                       
 Croatian   <EURHRK=    7.4225    7.4295    +0.09%    +0.11%
 kuna       >                                       
 Serbian    <EURRSD=  118.8700  118.8100    -0.05%    -0.31%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1100.25  1086.750    +1.24%    +2.05%
 Budapest             39755.06  39604.40    +0.38%    +0.96%
 Warsaw                2513.40   2463.25    +2.04%    +2.12%
 Bucharest             7909.79   7910.81    -0.01%    +2.01%
 Ljubljana  <.SBITOP    799.58    794.96    +0.58%    -0.84%
 Zagreb                1841.90   1840.82    +0.06%    -0.05%
 Belgrade   <.BELEX1    754.02    754.59    -0.08%    -0.76%
 Sofia                  688.57    685.09    +0.51%    +1.64%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6620    0.0690   +128bps     +7bps
   5-year   <CZ5YT=R    0.8770   -0.0280   +108bps     -3bps
   10-year  <CZ10YT=    1.6950    0.0010   +124bps     -1bps
   2-year   <PL2YT=R    1.6480   -0.0260   +226bps     -3bps
   5-year   <PL5YT=R    2.5640   -0.0270   +277bps     -3bps
   10-year  <PL10YT=    3.2620   -0.0410   +281bps     -5bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.06      1.25      1.38      0.00
 Hungary                  0.03      0.06      0.10      0.03
 Poland                   1.75      1.79      1.88      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Bartosz Chmielewski)
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