July 26, 2018 / 9:31 AM / a year ago

CEE MARKETS-Currencies, stocks rise, bonds ease on U.S.-EU trade talks

    * Dollar retreat on U.S.-EU trade talks lifts CEE fx, stocks
    * Hungarian bond yields buck rise, selling positions closed
    * Thursday's ECB meeting, Friday's U.S. GDP figures watched

    By Sandor Peto
    BUDAPEST, July 26 (Reuters) - Central European currencies
and stocks firmed and government bond yields mostly rose on
Thursday after Wednesday's U.S.-EU talks eased fears of a trade
    Before the talks, U.S. President Donald Trump threatened to
impose a 24 percent tariff on auto imports, a move that could
hit Central Europe's flourishing car industry.
    The dollar, whose rally knocked Central European
currencies lower in the past months, eased on Thursday. 
    The forint and the zloty firmed 0.4
percent against the euro by 0757 GMT, the Czech crown
firmed 0.1 percent to a seven-week high, and the leu
traded steady, near two-month highs.
    A rise in risk appetite in global markets overshadowed
differences in monetary policies within the region. Regional
stock indices rose, led by a one percent increase in Budapest
    The forint and the zloty have been worst-hit by the flows
into the dollar in past months as Hungary and Poland have loose
monetary policies.
    The Czech and Romanian central banks have been increasing
interest rates, and comments from Czech central bankers made in
recent days have boosted expectations for another hike to come
next week. 
    Regional government bond yields mostly followed a rise in
the closely watched U.S. 10-year Treasury yield, with Poland's
corresponding paper bid at 3.157 percent, up three basis points.
    Hungary bucked the rise. Its bond yield curve shifted lower
by six to nine basis points relative to Wednesday's midday
fixing, with the 10-year paper trading at 3.28
    Hungarian bonds sold off heavily in recent months, when the
dollar and U.S. yields were rising and Hungarian inflation was
picking up. They well underperformed Polish peers.
    But the sell-off did not force the Hungarian central bank
into changing its ultra-loose policies and investors have been
closing short positions this month.    
    The forint's strengthening helps debt prices, and Treasury
bill expiries support demand, one Budapest-based fixed income
trader said.
    "Investors (elsewhere) may prepare for the risk that the ECB
(European Central Bank) says something hawkish (after its
Thursday meeting) contrary to expectations," the trader said.
    "(But in Hungary) people are starting to realize that the
BUBOR (interbank rates) and the (central bank) base rate will
not change much in the next half a year, and this is pulling
short-term yields down," he added.
    Polish bond yields have corrected upwards partly because a
cut in Friday's bond auction offer by the government was smaller
than expected, but "the outlook for tomorrow's auction is pretty
good," BZ WBK analysts said in a note.
    They said investors would be watching the ECB's news
conference, but Friday's U.S. second-quarter economic output
figures "could be more important for the market". 
    A strong reading suggesting a pick-up in the pace of Federal
Reserve rate hikes could cut appetite for emerging market
            CEE       SNAPSHOT   AT                         
            MARKETS             0957 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6200   25.6520    +0.12%    -0.30%
 crown      >                                       
 Hungary    <EURHUF=  324.1500  325.4500    +0.40%    -4.08%
 forint     >                                       
 Polish     <EURPLN=    4.2860    4.3020    +0.37%    -2.56%
 zloty      >                                       
 Romanian   <EURRON=    4.6245    4.6245    +0.00%    +1.19%
 leu        >                                       
 Croatian   <EURHRK=    7.4010    7.4020    +0.01%    +0.40%
 kuna       >                                       
 Serbian    <EURRSD=  117.9800  117.9900    +0.01%    +0.44%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1092.91  1090.420    +0.23%    +1.37%
 Budapest             35317.00  34963.19    +1.01%   -10.31%
 Warsaw                2273.43   2260.70    +0.56%    -7.63%
 Bucharest             7986.89   7953.86    +0.42%    +3.01%
 Ljubljana  <.SBITOP    887.16    888.04    -0.10%   +10.02%
 Zagreb                1830.72   1821.56    +0.50%    -0.66%
 Belgrade   <.BELEX1    739.43    739.27    +0.02%    -2.68%
 Sofia                  635.15    636.02    -0.14%    -6.24%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.2540    0.1750   +186bps    +17bps
   5-year   <CZ5YT=R    1.5950    0.0530   +181bps     +4bps
   10-year  <CZ10YT=    2.1210   -0.0010   +171bps     -2bps
   2-year   <PL2YT=R    1.6290    0.0000   +223bps     +0bps
   5-year   <PL5YT=R    2.5060    0.0190   +272bps     +1bps
   10-year  <PL10YT=    3.1570    0.0290   +275bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.44      1.65      1.77      1.20
 Hungary                  0.38      0.57      0.77      0.23
 Poland                   1.74      1.75      1.82      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto;
Editing by Stephen Powell)
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