June 5, 2019 / 9:37 AM / 2 months ago

CEE MARKETS-Crown leads rise on retail surge, Poland seen holding rates

    * Polish central bank expected to keep rates at record lows
    * Czech, Hungarian, Romanian retail sales continue to surge
    * Czech crown sets 5-week high, to levels around last rate
    * Polish 10-year bonds trade near 3-1/2-year low yields

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 5 (Reuters) - The Czech crown firmed
to a 5-week high on Wednesday as surging retail sales maintained
upwards pressure on inflation in Central European emerging
markets, in contrast to developed economies.
    The Polish central bank (NBP) was seen keeping interest
rates on hold at its meeting on Wednesday, while expectations
for a Federal Reserve cut kept the dollar near 7-week lows
against a basket of currencies.
    The region's main currencies set multi-week highs against
the euro in the past days, and a 4-month high in the case of the
leu, which gave up some ground on Wednesday.
    The crown gained 0.3 percent, outperforming the
zloty and the forint, to 25.67 by 0847 GMT.
    It reached its strongest level since early May when the
Czech central bank (CNB) increased its main interest rate the
last time.
    Buyers shrugged off Tuesday's comments from CNB board member
Tomas Holub who said interest rates were likely to stay stable
in the near term.
    "The flow from the last two weeks dragging (the crown
weaker) just disappeared in the last two day with optimistic
data figures pointing to some room for a possible hike," one
trader said.
    Annual growth in retail sales picked up to about 7 percent
in the Czech Republic and Hungary, and slowed to that pace in
    The robust growth maintains upwards pressure on consumer
prices, suggesting that inflation may pick further up in the
    May data released in Poland on Tuesday showed some pick-up.
    However, Polish annual inflation at 2.3 percent remains 
below its regional peers and expectations. Polish core inflation
may even decline, Santander bank analysts said in a note.
    Poland's 10-year government bond yield dropped
1 basis point to 2.596 percent.
    It traded near its lowest levels since November 2015 as the
NBP was unlikely to change its record low interest rates nor its
guidance for stability at its meeting.
    Polish markets also shrugged off a change at the helm of the
finance ministry in a government reshuffle on Tuesday, which
analysts said was unlikely to change policy.
    Hungary's more volatile yields consolidated after a jump of
8 basis point in the 10-year paper to 2.89 percent on Tuesday,
following days of sharp falls as global markets were also
    "Hungary's monetary policy is loose... and when global
developments seem to justify that, yields slump, but negative
impacts can boost them," one trader said.
    "If global trade tensions are resolved... our (bond) yields
can easily fall 30-40 basis points," the trader added.
            CEE       SNAPSHOT   AT                         
            MARKETS             1047 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6700   25.7400    +0.27%    +0.14%
 crown      >                                       
 Hungary    <EURHUF=  321.8500  322.0400    +0.06%    -0.24%
 forint     >                                       
 Polish     <EURPLN=    4.2790    4.2796    +0.01%    +0.25%
 zloty      >                                       
 Romanian   <EURRON=    4.7340    4.7325    -0.03%    -1.69%
 leu        >                                       
 Croatian   <EURHRK=    7.4170    7.4185    +0.02%    -0.09%
 kuna       >                                       
 Serbian    <EURRSD=  117.7600  117.8700    +0.09%    +0.46%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1058.60  1053.830    +0.45%    +7.30%
 Budapest             41025.86  41157.02    -0.32%    +4.82%
 Warsaw                2227.74   2233.75    -0.27%    -2.15%
 Bucharest             8514.60   8472.73    +0.49%   +15.32%
 Ljubljana  <.SBITOP    881.53    883.33    -0.20%    +9.61%
 Zagreb                1857.80   1846.80    +0.60%    +6.23%
 Belgrade   <.BELEX1    733.50    733.50    +0.00%    -3.70%
 Sofia                  582.70    580.11    +0.45%    -1.98%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7070    0.1090   +235bps    +11bps
   5-year   <CZ5YT=R    1.5010    0.0110   +207bps     +1bps
   10-year  <CZ10YT=    1.7060    0.0600   +191bps     +6bps
   2-year   <PL2YT=R    1.6750   -0.0030   +232bps     +0bps
   5-year   <PL5YT=R    2.0590   -0.0180   +263bps     -2bps
   10-year  <PL10YT=    2.6150   -0.0080   +282bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.18      2.12      2.05      2.18
 Hungary                  0.34      0.44      0.55      0.19
 Poland                   1.74      1.75      1.73      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto, Editing by William Maclean)
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