October 31, 2018 / 9:49 AM / 12 days ago

CEE MARKETS-Crown weakens before Czech central bank meeting

    * Crown weakens despite expectations for rate hike
    * Analysts split over when rate hikes will lift crown
    * Polish CPI retreats further below central bank target
    * Earnings jump boosts oil groups OMV Petrom shares

    By Sandor Peto
    BUDAPEST, Oct 31 (Reuters) - The crown dropped to its lowest
in more than three months against the euro on Wednesday, even
though the Czech central bank is expected to raise interest
rates at its meeting on Thursday.
    Other Central European currencies were steady as the euro
, closely watched in the region's markets, rebounded from
an initial weakening against the dollar.
    All 14 respondents in a Reuters poll forecast the Czech
central bank would raise its two-week repo rate at
the Nov. 1 meeting by 25 basis points to 1.75 percent. It would
be the first time since introducing inflation targeting in 1998
that the central bank has raised rates four meetings in a row. 
    The crown still eased as much as 0.2 percent
against the euro in early trade. At 0816 GMT, it traded at
25.911, down 0.1 percent.
    Central Europe's most hawkish central bank is expected to
raise rates further next year, and most analysts expect the
higher rates will strengthen the crown eventually. But they are
split over when.
    The Czech economy is robust, but the last rate hikes have
failed to boost the currency. Market sentiment has turned gloomy
for currencies in emerging markets, for a host of reasons.
    Those range from A dollar rally, rising U.S. Treasury
yields, the U.S.-Sino trade war and the yuan's weakness to
concern over Britain's talks about leaving the European Union
and worry over Italy's budget deficit.
    "We believe that some of the risk factors, which prevented
the CZK from strengthening over the last months, are
sufficiently priced in the currency now," Raiffeisen analysts
said in a note.
    They said expectations for a crown strengthening could push
the Czech 10-year bond yield - bid at 2.163 percent on
Wednesday, higher by 2 basis points - below 2.1 percent in the
short term. But yields may rise till the end of 2018 once
short-term gains by the crown end.
    The corresponding Polish yield also rose, by 4 basis points
to 3.21 percent. They tracked a rise in euro zone yields,
including German Bunds, ahead of euro zone inflation data for
October, due at 0900 GMT.
    Poland's own figures showed an unexpected decline in the
annual inflation index to 1.7 percent, from 1.8 percent in
September, further below the Polish central bank's 2.5 percent
target.
    Central European stock indices mostly rose, tracking
rebounding Asian and Western European peers. 
    Bucharest's main index rose 0.4 percent.
    The shares of OMV Petrom, the Romanian unit of
Austrian OMV, gained as much as 3.2 percent in early
trading after a surge in its third-quarter net profit.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1016 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9110   25.8900    -0.08%    -1.42%
 crown      >                                       
 Hungary    <EURHUF=  324.6000  324.6400    +0.01%    -4.22%
 forint     >                                       
 Polish     <EURPLN=    4.3305    4.3330    +0.06%    -3.56%
 zloty      >                                       
 Romanian   <EURRON=    4.6660    4.6650    -0.02%    +0.29%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4323    -0.04%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.1800  118.1900    +0.01%    +0.27%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1062.41  1049.820    +1.20%    -1.46%
                                       0            
 Budapest             36742.76  36444.72    +0.82%    -6.69%
 Warsaw                2140.73   2122.73    +0.85%   -13.02%
 Bucharest             8526.62   8489.68    +0.44%    +9.97%
 Zagreb                1784.98   1789.68    -0.26%    -3.14%
 Belgrade   <.BELEX1    736.13    736.13    +0.00%    -3.12%
            5>                                      
 Sofia                  594.86    597.44    -0.43%   -12.19%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.6580    0.1250   +231bps    +13bps
            R>                                      
   5-year   <CZ5YT=R    1.8880    0.0380   +208bps     +3bps
            R>                                      
   10-year  <CZ10YT=    2.1630    0.0230   +177bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5410   -0.0200   +220bps     -2bps
            R>                                      
   5-year   <PL5YT=R    2.4690    0.0240   +266bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.2180    0.0460   +283bps     +3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.05      2.20      2.35      1.80
            <PRIBOR=                                
            >                                       
 Hungary                  0.34      0.60      0.95      0.16
                                                    
 Poland                   1.77      1.80      1.88      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Additional reporting by Aaron Jude Saldanha in Bangalore, Radu
Marinas in Bucharest and Jason Hovet in Prague; editing by Larry
King)
  
 
 
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