July 2, 2018 / 3:03 PM / 15 days ago

CEE MARKETS-German political crisis knocks down CEE currencies, leu resists

    * German coalition crisis, global risk aversion depress
assets
    * Forint at record low, crown at 8-month low vs euro 
    * Zloty near weakest level since 2016 on strong PMI, CPI
drop
    * Leu steady, Romanian central bank seen increasing rates

 (Recasts with new figures, Polish rate setter comments,
Romanian market)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, July 2 (Reuters) - Central Europe's liquid
currencies fell, with the forint hitting record lows
against the euro on Monday as Germany's coalition crisis
prompted yet more selling of Central European assets.
    Germany's ruling coalition has been shaken by a conflict
over migration between Chancellor Angela Merkel and the Bavarian
CSU party.
    The crisis weighed on the euro and helped the dollar
 which has also been boosted by fears that an ongoing
trade war may curb economic growth outside the United States.
    Capital flows into the dollar has knocked down assets in
emerging markets including Central Europe in the past months.
    Loose monetary policies have left the forint and
the zloty particularly exposed, and the crown
 has also weakened even though the Czech central bank
(CNB) has been increasing its interest rates.
    The region's main currencies traded around key psychological
lines on Monday: the forint and the crown on the weak side of
330 and 26 against the euro, respectively, while the zloty
approached 4.4. 
    The crown, trading at 26.05 at 1429 GMT, shed 0.2
percent on Monday and 2 percent so far this year.
    The forint, after touching a record low at 330.7, firmed to
330.47, down 0.2 percent from Friday and almost 6 percent since
the end of 2017.
    The currencies have failed to benefit from a rate rise
delivered by the CNB last week, and a shift by the Hungarian
central bank (NBH) to less dovish rhetoric two weeks ago.
    The NBH is under pressure to tighten policy or risk further
forint weakening and a rise in inflation, one Budapest-based
money market dealer said, adding that forward rate agreements
 had priced in an NBH rate hike around the end of 2018.
    The zloty has eased almost as much as the forint
so far this year. Its half percent weakening on Monday brings it
to 5 percent weaker levels from the end of last year.
    It was worst hit in the region on Monday, after Poland
reported upbeat June PMI manufacturing sentiment figures and
data showing that inflation fell to 1.9 percent in June from 2
percent in May.
    The figures were unlikely to affect the Polish central
bank's forecasts that interest rates could stay low for years. 
    Rate setter Eryk Lon was quoted by the state news agency PAP
as saying that keeping interest rates at the current record low
levels was positive for investments, and that the zloty's recent
weakening was positive for exporters.
    Romania's leu continued to resist the pressure.
    It has been less affected by the capital flows into the
dollar than its main regional peers as it is less liquid, and
Romania's inflation is expected to retreat from five-year lows
above 5 percent in the rest of the year.
    In a Reuters survey, six of 10 analysts expected the
Romanian central bank to hike its benchmark interest rate by a
quarter point to 2.75 percent at its next meeting on Wednesday.

    
            CEE       SNAPSHOT   AT                         
            MARKETS             1629 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0500   26.0020    -0.18%    -1.95%
 crown      >                                       
 Hungary    <EURHUF=  330.4700  329.7500    -0.22%    -5.92%
 forint     >                                       
 Polish     <EURPLN=    4.3960    4.3754    -0.47%    -5.00%
 zloty      >                                       
 Romanian   <EURRON=    4.6620    4.6655    +0.08%    +0.38%
 leu        >                                       
 Croatian   <EURHRK=    7.3870    7.3845    -0.03%    +0.59%
 kuna       >                                       
 Serbian    <EURRSD=  117.8700  118.0000    +0.11%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1069.76  1064.200    +0.52%    -0.78%
                                       0            
 Budapest             35912.80  36127.71    -0.59%    -8.80%
 Warsaw                2121.55   2135.47    -0.65%   -13.80%
 Bucharest             8055.01   8087.01    -0.40%    +3.89%
 Ljubljana  <.SBITOP    873.31    886.71    -1.51%    +8.30%
            >                                       
 Zagreb                1804.67   1816.49    -0.65%    -2.07%
 Belgrade   <.BELEX1    739.37    733.37    +0.82%    -2.69%
            5>                                      
 Sofia                  626.80    634.26    -1.18%    -7.48%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.1840    0.0420   +188bps     +6bps
            R>                                      
   5-year   <CZ5YT=R    1.5820   -0.0340   +189bps     -2bps
            R>                                      
   10-year  <CZ10YT=    2.1540   -0.0570   +185bps     -6bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6480    0.0170   +235bps     +4bps
            R>                                      
   5-year   <PL5YT=R    2.5600    0.0190   +287bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2470    0.0350   +294bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.17      1.29      1.43      1.16
            <PRIBOR=                                
            >                                       
 Hungary                  0.84      1.06      1.29      0.26
                                                    
 Poland                   1.74      1.78      1.83      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

 (Reporting by Sandor Peto and Gergely Szakacs
Editing by Louise Ireland/Keith Weir)
  
 
 
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