June 28, 2018 / 2:30 PM / 3 months ago

CEE MARKETS-Crown gives up post-hike gains on global gloom, EU summit

    * Crown eases, central bank rate hike impact fades fast
    * Global growth fears, EU summit maintain risk aversion
    * Forint hits new record low, keeping rates markets nervous

 (Recasts with new quotes, adding EU summit)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 28 (Reuters) - The crown hit
a nine-month low against the euro on Thursday as worries over
global economic growth and a divisive European Union summit
overshadowed Wednesday's interest rate hike by the Czech central
bank (CNB).
    The hike proved just as inefficient in reversing currency
weakness as last week's shift by Hungary's central bank (NBH) to
less dovish rhetoric.
    Regional currencies, stocks and government bonds mostly
eased, with Warsaw leading equity market falls. Its index
 fell 1.3 percent by 1259 GMT, driven by sliding bank
stocks.
    Emerging market assets have been repriced due to fears that
a global trade war can lead to economic slowdown outside the
United States, with the dollar sucking away liquidity. 
    Risk aversion was also fuelled in European markets by
expectations for a divisive EU summit on Thursday and Friday,
amid a crisis in the bloc's migration policy and in Germany's
ruling coalition.
    "We see more (monetary policy) tightening than is
widely-anticipated in Central and Eastern Europe over the next
18 months," Capital Economics said in a note. 
    The Czech rate hike, the fourth since August 2017,
temporarily helped the crown hit a record high against its
regional peer, the forint and a 5-year high versus the zloty,
and also regain some ground versus the euro.
    But it had reversed its course already on Wednesday, and on
Thursday it fell in tandem with the forint and the
zloty, to trade at 25.981 versus the euro at 1259 GMT,
down 0.14 percent.
    Its weakness, which adds to inflation pressure, was a key
factor behind Wednesday's CNB rate hike.
    But the hike has failed to lift the crown. It remains weaker
than the 25.2 level predicted by the CNB for the second quarter.
    "The market is unsure about whether a rate hike now simply
means one less later, or whether it should raise expectation
about the 'terminal level' of rates by the end of the (CNB'S)
forecast horizon," Commerzbank analysts said in a note.
    Dealers and analysts are wondering if the crown's weakness
will push the bank into another hike at its next meeting in
August. 
    The forint set a new record low in early trade at
328.9 versus the euro. It rebounded to 328.7 later, but analysts
and traders said it remained fragile.
    The NBH said last week that ultra-loose monetary conditions
could not prevail until the end of its policy horizon, five to
eight quarters.
    The rhetoric change was unable to stem the forint's fall.
    The NBH is the only central bank in the region which
operates unconventional liquidity tools to keep monetary
conditions loose, and it should shelve those programmes to
reverse the forint fall, Commerzbank analyst Tatha Ghose said.
    "The market probably does not believe that the Hungarian MPC
(central bank) will readily make such a major shift without
first being sufficiently 'tested'," she said in a note.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1459 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9810   25.9450    -0.14%    -1.69%
 crown      >                                       
 Hungary    <EURHUF=  328.7000  328.0000    -0.21%    -5.41%
 forint     >                                       
 Polish     <EURPLN=    4.3592    4.3515    -0.18%    -4.19%
 zloty      >                                       
 Romanian   <EURRON=    4.6580    4.6539    -0.09%    +0.47%
 leu        >                                       
 Croatian   <EURHRK=    7.3830    7.3825    -0.01%    +0.64%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  118.0000    +0.10%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1053.43  1051.720    +0.16%    -2.29%
                                       0            
 Budapest             35383.33  35587.46    -0.57%   -10.14%
 Warsaw                2116.05   2143.25    -1.27%   -14.02%
 Bucharest             7976.30   7940.99    +0.44%    +2.87%
 Ljubljana  <.SBITOP    888.06    883.79    +0.48%   +10.13%
            >                                       
 Zagreb                1811.70   1812.65    -0.05%    -1.69%
 Belgrade   <.BELEX1    730.03    730.53    -0.07%    -3.92%
            5>                                      
 Sofia                  633.09    633.54    -0.07%    -6.55%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.1670    0.0790   +186bps     +8bps
            R>                                      
   5-year   <CZ5YT=R    1.6440    0.0470   +196bps     +6bps
            R>                                      
   10-year  <CZ10YT=    2.2260    0.0240   +192bps     +4bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6340    0.0050   +233bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.5820    0.0550   +290bps     +7bps
            R>                                      
   10-year  <PL10YT=    3.2670    0.0410   +296bps     +6bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.17      1.29      1.43      1.16
            <PRIBOR=                                
            >                                       
 Hungary                  0.62      0.79      0.99      0.26
                                                    
 Poland                   1.74      1.77      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
      

 (Reporting by Sandor Peto
Editing by Keith Weir)
  
 
 
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