March 5, 2020 / 11:07 AM / 25 days ago

CEE MARKETS-Currencies stable, investors eye global cues in wait-and-watch mode

    By Anita Komuves
    BUDAPEST, March 5 (Reuters) - Central European currencies
were stable, while stock indexes looked for direction on
Thursday as investors were trying to gauge the economic effects
of the coronavirus and the tools deployed by major central banks
to soften the blow.
    Hungary confirmed its first two cases of coronavirus late on
Wednesday, which means that the virus is now present across
Central Europe, and analysts are assessing the potential impact
from possible supply-chain disruptions and on tourism. 
    The U.S. Fed's emergency 50bps rate cut on Tuesday helped
stabilize Central European markets that suffered huge losses
last week. The central banks of Australia and Canada also cut
interest rates this week.
   "The U.S. interest rate curve prices further cuts, which
would entail great support for CEE asset prices and risky
currencies," Raiffeisen bank said in a note.
   "The ECB might also loosen policy, which will take pressure
off national central banks despite the inflationary pressures on
them," a trader in Budapest said.
    Prague's main index was up 0.8%, as of 0922 GMT on
Thursday, while stocks in Budapest, Warsaw and
Bucharest moved sideways.  
    Some regional central banks signalled this week that they
are watching the coronavirus developments closely, but said they
did not see reasons for policy changes at the moment. 
    The Polish central bank left its benchmark interest rate
unchanged at 1.5% on Wednesday. NBP governor Adam Glapinski said
that interest rates will remain stable, and the Monetary Policy
Council (MPC) will react calmly in the face of a mounting threat
to the global economy from the coronavirus.
    Poland's benchmark interest rate has been stable since the
bank ended an easing cycle in 2015. The NBP decided to leave
interest rates unchanged on Wednesday despite accelerating
inflation and slowing growth at home and in major economies. 
    "The emergency Fed rate cut in the wake of the coronavirus
completely removed any pressure on NBP to react hawkishly to
inflation overshoot," Tatha Ghose of Commerzbank wrote in a
    "Yesterday's NBP remarks gave us an early indication about
how CEE central banks as a group might behave in coming weeks:
the entire emphasis turned to what the central bank could do to
ease monetary policy and counter potential effects of the
virus," Ghose added.
    The Polish zloty strengthened slightly after the
central bank's decision on Wednesday, and was trading stable at
4.2986 to the euro on Thursday.
    Czech central bank Vice-Governor Marek Mora was quoted for a
second time on Wednesday in a media interview saying he saw
stable rates this year after a surprise hike last month, but he
told weekly magazine Ekonom that the coronavirus outbreak was a
big uncertainty. 
    The Czech National Bank surprised markets with a 25-basis
points hike to its main two-week repo rate last
    Czech forward rates have fallen sharply in the previous two
sessions, with the 12x15 FRA falling 65 basis points and
signalling chances of more than 100 bps in rate cuts next year.

            CEE        SNAPSHOT    AT                         
            MARKETS               1022 CET            
                       Latest     Previous  Daily     Change
                       bid        close     change    in 2020
 Czech                   25.3450   25.3500    +0.02%    +0.34%
 Hungary                336.5000  335.8800    -0.18%    -1.59%
 Polish                   4.2986    4.2969    -0.04%    -0.98%
 Romanian                 4.8080    4.8051    -0.06%    -0.41%
 Croatian                 7.4825    7.4845    +0.03%    -0.50%
 Serbian                117.4400  117.5450    +0.09%    +0.11%
 Note:      calculated from                 1800 CET          
                       Latest     Previous  Daily     Change
                                  close     change    in 2020
 Prague                  1014.98  1007.240    +0.77%    -9.02%
 Budapest               43275.80  43327.92    -0.12%    -6.09%
 Warsaw                  1861.31   1860.95    +0.02%   -13.43%
 Bucharest               9765.45   9766.69    -0.01%    -2.12%
 Ljubljana                913.61    911.47    +0.23%    -1.32%
 Zagreb                  1874.18   1868.74    +0.29%    -7.10%
 Belgrade   <.BELEX15     790.73    778.03    +1.63%    -1.37%
 Sofia                    538.40    543.21    -0.89%    -5.23%
                       Yield      Yield     Spread    Daily
                       (bid)      change    vs Bund   change
 Czech                                                spread
   2-year   <CZ2YT=RR     1.7100   -0.1060   +253bps    -12bps
   5-year   <CZ5YT=RR     1.3890   -0.0800   +221bps     -9bps
   10-year  <CZ10YT=R     1.2170    0.0320   +184bps     +2bps
   2-year   <PL2YT=RR     1.2950    0.0390   +212bps     +3bps
   5-year   <PL5YT=RR     1.4470    0.0050   +226bps     +0bps
   10-year  <PL10YT=R     1.7440    0.0230   +237bps     +1bps
                       3x6        6x9       9x12      3M
 Czech Rep          <       2.04      1.69      1.52      2.35
 Hungary            <       0.69      0.71      0.74      0.64
 Poland             <       1.53      1.38      1.26      1.70
 Note: FRA  are for ask prices                                

 (Additional reporting by Jason Hovet in Prague; Editing by
Sherry Jacob-Phillips)
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