June 28, 2018 / 10:00 AM / 9 months ago

CEE MARKETS-Czech crown gives up post-hike gains on global gloom

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

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 28 (Reuters) - The crown hit
a nine-month low against the euro on Thursday as risk aversion
in global and Central European markets overshadowed Wednesday's
interest rate hike by the Czech central bank (CNB).
    With fears of a trade war between the United States and its
partners in the background, the hike proved similarly
inefficient in reversing currency weakness as last week's shift
by Hungary's central bank (NBH) to less dovish rhetoric.
    The Czech 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.
    But it underperformed them on Thursday amid worries over
global economic growth.
    It weakened by 0.4 percent against the euro by 0858 GMT, to
    Its weakness, which adds to inflation pressure, was a key
factor behind Wednesday's CNB rate hike, which came earlier than
a slim majority of analysts had expected.
    Dealers and analysts are wondering if the crown's weakness
will push the bank into another hike at its next meeting in
    With global liquidity dropping and investors transferring
funds into the United States, liquid assets in emerging markets
are being repriced and sold.
    The forint and the zloty are kept weak by still loose
monetary policies, while in the Czech Republic investors sit on
a huge pile of crown positions built before the CNB removed a
cap on the currency last year, letting it firm.
    The crown is shaky "probably because 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.
    The CNB's tightening could still help the crown outperform
the forint and the zloty, which have eased 5 and 4 percent so
far this year, respectively, while the crown has shed less than
2 percent, analysts said. 
    The forint traded flat at 328 against the euro,
off a new record low set in early trade at 328.4, while the
zloty eased slightly.
    Hungarian government bond yields and the key 3-month BUBOR
interbank interest rate stabilised after a steep rise
in the past two months.
    The NBH said last week that ultra-loose monetary conditions
could not prevail until the end of its policy horizon, 5 to 8
quarters, but the rhetoric change was unable to stem the
forint's weakening.
    Worry over the forint's jitters pushed interest rate swaps
higher by about 5 basis points on Thursday, but bond yields
remained flat, one Budapest-based fixed income trader said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1058 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0390   25.9450    -0.36%    -1.91%
 crown      >                                       
 Hungary    <EURHUF=  328.0000  328.0000    +0.00%    -5.21%
 forint     >                                       
 Polish     <EURPLN=    4.3567    4.3515    -0.12%    -4.14%
 zloty      >                                       
 Romanian   <EURRON=    4.6575    4.6539    -0.08%    +0.48%
 leu        >                                       
 Croatian   <EURHRK=    7.3820    7.3825    +0.01%    +0.65%
 kuna       >                                       
 Serbian    <EURRSD=  117.8600  118.0000    +0.12%    +0.54%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1052.83  1051.720    +0.11%    -2.35%
 Budapest             35582.42  35587.46    -0.01%    -9.64%
 Warsaw                2134.84   2143.25    -0.39%   -13.26%
 Bucharest             7931.87   7940.99    -0.11%    +2.30%
 Ljubljana  <.SBITOP    888.16    883.79    +0.49%   +10.14%
 Zagreb                1806.94   1812.65    -0.32%    -1.95%
 Belgrade   <.BELEX1    729.72    730.53    -0.11%    -3.96%
 Sofia                  633.63    633.54    +0.01%    -6.47%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.1720    0.0840   +188bps     +9bps
   5-year   <CZ5YT=R    1.6070    0.0100   +191bps     +1bps
   10-year  <CZ10YT=    2.1900   -0.0120   +187bps     -1bps
   2-year   <PL2YT=R    1.6390    0.0100   +234bps     +1bps
   5-year   <PL5YT=R    2.5580    0.0310   +286bps     +4bps
   10-year  <PL10YT=    3.2320    0.0060   +291bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.29      1.43      0.93
 Hungary                  0.62      0.83      1.00      0.00
 Poland                   1.75      1.77      1.83      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Toby Chopra)
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