March 18, 2019 / 10:21 AM / 3 months ago

CEE MARKETS-Leu firms as Romania pledges avert threat of S&P downgrade

    * S&P affirms Romania's rating outlook, Romanian assets firm
    * Romania's fiscal policy remains uncertain-analysts
    * OTP Bank surge boosts Budapest's stock index to record
    * Forint ignores threat of Hungarian ruling party ouster
from EPP

    By Sandor Peto
    BUDAPEST, March 18 (Reuters) - The leu extended gains on
Monday after Standard & Poor's affirmed Romania's stable credit
rating outlook on Friday, averting the threat of a downgrade
over a controversial tax plan. 
    The government appealed against a change in the rating
outlook to negative early this month, and the S&P reprieve
followed its pledges to change a raft of new taxes announced
three months.
    The leu firmed 0.1 percent to 4.7545 against the
euro by 0917 GMT, but it remained weaker than its 200-day moving
average of 4.675.
    Romanian government bond yields dropped, with the 2-year
yield testing 10-month lows around 3.15 percent.
    "Material recovery remains unlikely in our view given
ongoing (fiscal) policy risks," said Raiffeisen analyst Stephan
Imre in a note.
    Even if the government makes changes on its biting bank tax,
uncertainty remains as the 2019 budget is based on too
optimistic economic growth assumptions, analysts said.     
    Sentiment in Central European markets was cautiously
optimistic as investors expected dovish comments from
Wednesday's Federal Reserve meeting. 
    Stocks mostly rose in the region's main bourses including a
0.35 percent rise in Bucharest's blue-chip index.
    Budapest's main index led the rise, surging to record
highs. It was 1.1 percent higher at 0917 GMT.
    Most of the rise came from an over 3 percent jump in the
shares of OTP, the region's biggest independent
    Budapest markets were closed on Friday for a national
holiday, when a newspaper report in Ljubljana suggested that OTP
was well positioned to buy state-owned lender Abanka, Slovenia's
thrid-biggest lender.
    The report helped OTP stocks dash through a resistance level
at 12,500 forints ($45.13), to record highs, analysts said.
    Trading at 12,720 forints at 0936 GMT, it may head towards
the 13,000-forint psychological level, said Zoltan Varga, an
analyst at Equilor brokerage.
    Budapest markets, including the forint, shrugged off the
risk that the mainstream conservative European People's Party
bloc may expel Hungarian Prime Minister Viktor Orban's Fidesz
party at a meeting on Wednesday.
    "The odds (are) 20 percent or less," said Varga, adding that
even an expulsion would not hit the forint significantly.
    The Hungarian currency tested the 10-month highs
against the euro it reached last week amid expectations that the
Hungarian central bank could start to tighten liquidity in
markets at its meeting on March 26.
    The crown was flat, ignoring a projection from
Czech rate setter Vojtech Benda that the central bank could
raise interest rates three times this year if the crown remains
            CEE       SNAPSHOT   AT                         
            MARKETS             1017 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6460   25.6450    -0.00%    +0.24%
 crown      >                                       
 Hungary    <EURHUF=  314.3000  314.3000    +0.00%    +2.16%
 forint     >                                       
 Polish     <EURPLN=    4.2982    4.2996    +0.03%    -0.20%
 zloty      >                                       
 Romanian   <EURRON=    4.7545    4.7605    +0.13%    -2.11%
 leu        >                                       
 Croatian   <EURHRK=    7.4140    7.4275    +0.18%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  117.8300  118.0500    +0.19%    +0.40%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1080.70  1070.290    +0.97%    +9.54%
 Budapest             41785.29  41335.02    +1.09%    +6.76%
 Warsaw                2345.47   2346.25    -0.03%    +3.02%
 Bucharest             7889.22   7861.83    +0.35%    +6.85%
 Ljubljana  <.SBITOP    869.62    861.12    +0.99%    +8.13%
 Zagreb                1772.89   1769.50    +0.19%    +1.38%
 Belgrade   <.BELEX1    711.13    708.61    +0.36%    -6.64%
 Sofia                  582.27    583.80    -0.26%    -2.05%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8140    0.0260   +235bps     +3bps
   5-year   <CZ5YT=R    1.7950    0.0170   +217bps     +2bps
   10-year  <CZ10YT=    1.9430    0.0460   +186bps     +5bps
   2-year   <PL2YT=R    1.6350   -0.0040   +217bps     +0bps
   5-year   <PL5YT=R    2.2420    0.0000   +261bps     +0bps
   10-year  <PL10YT=    2.9030    0.0010   +282bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.19      2.23      2.24      2.03
 Hungary                  0.41      0.60      0.79      0.14
 Poland                   1.73      1.74      1.74      1.72
 Note: FRA  are for ask prices                              

($1 = 276.9600 forints)

 (Reporting by Sandor Peto; editing by Emelia Sithole-Matarise)
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