July 3, 2018 / 10:35 AM / 2 months ago

CEE MARKETS-Forint rebounds from record low ahead of central bank meeting

    * Forint off record lows, some investors expect cbank
comments
    * Hungarian central bank holds non-rate-setting meeting
    * Hungarian cbank says June 19 statement remains the
guidance
    * Deal to save German coalition mildly improves sentiment
    * Czech crown hits 11-monht low in pre-holiday positioning

    By Sandor Peto
    BUDAPEST, July 3 (Reuters) - The forint jumped almost 1
percent versus the euro on Tuesday, anticipating a reaction from
the Hungarian central bank to the recent weakness of the
currency.
    The forint gained almost 1 percent to 327.35
against the euro earlier, and by 1023 GMT was up 0.7 percent at 
328.17.
    The bank holds its regular monthly non-rate-setting meeting
on Tuesday, and some market participants expect its statement
due at 1200 GMT, usually only one sentence, to include comments
that may affect the forint.
    In a reply to Reuters questions about Tuesday's meeting, the
central bank said it was sticking to guidance in its June 19
statement June inflation report.
    The bank said at the June 19 meeting that it was focused on
its inflation target, after a pick-up in prices across Central
Europe triggered concerns over a further rise above the middle
of the 2-4 percent target.
    It also shifted to less dovish rhetoric, but that has failed
to prevent a slide of the forint to record lows against the euro
on the weak side of the 330 line, which may generate additional
inflation by lifting the price of imported goods.
    NBH Deputy Governor Marton Nagy reiterated in parliament
late on Monday that price stability was the bank's only anchor,
according to a summary of his remarks published by financial
news website portfolio.hu. 
    Some market participants still believe that the bank may try
to shed more light on its policies to defend its inflation
target.
    "They may try to verbally support the forint," one
Budapest-based trader said.
    A fixed income trader was doubtful, adding that government
bond yields continued to rise.
    "What could they say? Talking is no longer enough," the
trader said.
    Global capital flows into the dollar in the past two months
caused a sell-off in emerging markets, including Central Europe.
    The forint and the zloty have been
particularly hit hard as monetary policy is loose in Hungary and
Poland. 
    Hungarian government bond yields rose in illiquid trade on
expectations for a rise in interest rates, traders said. The
3-year benchmark bond traded at around 2.08 percent, up 10 basis
points, its highest since early 2016.
    Pressure on Central European assets eased on Tuesday as the
German government survived a coalition crisis over migration in
talks on Monday.
    The deal also helped the euro rebound against the
dollar, but the greenback's strengthening may continue.
    While Central Europe's main stock indices rose by 0.4-1
percent, caution was signalled by the movement of regional
currencies.
    The zloty and the leu firmed by only 0.1
percent.
    The Czech crown fell, hitting an 11-month low at 26.183
versus the euro, with investors closing positions ahead of a
long weekend which will start with a national holiday on
Thursday.  
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1045 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.1400   26.0820    -0.22%    -2.29%
 crown      >                                       
 Hungary    <EURHUF=  327.6500  330.4300    +0.85%    -5.11%
 forint     >                                       
 Polish     <EURPLN=    4.3989    4.4035    +0.10%    -5.06%
 zloty      >                                       
 Romanian   <EURRON=    4.6565    4.6625    +0.13%    +0.50%
 leu        >                                       
 Croatian   <EURHRK=    7.3840    7.3863    +0.03%    +0.63%
 kuna       >                                       
 Serbian    <EURRSD=  117.8700  117.9700    +0.08%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1074.78  1070.500    +0.40%    -0.31%
                                       0            
 Budapest             36205.25  35867.75    +0.94%    -8.06%
 Warsaw                2138.57   2119.31    +0.91%   -13.11%
 Bucharest             8046.52   8020.17    +0.33%    +3.78%
 Ljubljana  <.SBITOP    876.08    873.99    +0.24%    +8.64%
            >                                       
 Zagreb                1797.61   1804.67    -0.39%    -2.46%
 Belgrade   <.BELEX1    736.25    739.37    -0.42%    -3.10%
            5>                                      
 Sofia                  629.08    626.80    +0.36%    -7.14%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.1910    0.0290   +188bps     +3bps
            R>                                      
   5-year   <CZ5YT=R    1.6400    0.0580   +193bps     +4bps
            R>                                      
   10-year  <CZ10YT=    2.1920    0.0360   +187bps     +2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6630    0.0320   +236bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.6210    0.0560   +291bps     +4bps
            R>                                      
   10-year  <PL10YT=    3.3040    0.0690   +298bps     +5bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.17      1.29      1.43      1.16
            <PRIBOR=                                
            >                                       
 Hungary                  0.88      1.20      1.43      0.26
                                                    
 Poland                   1.75      1.78      1.85      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Radu Marinas in Bucharest and Jason
Hovet in Prague, editing by Louise Heavens)
  
 
 
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