September 28, 2018 / 10:52 AM / in 21 days

CEE MARKETS-Stocks ease on sour European mood over Italian budget

    * Budapest bucks CEE stocks fall as OTP Bank jumps over key
line
    * Bonds, forex tread water, euro zone CPI rise not a worry 

    By Sandor Peto
    BUDAPEST, Sept 28 (Reuters) - Central European stocks mostly
eased on Friday as concerns over Italy's debt pile weighed on
sentiment in European markets, knocking down the euro.
    The bluechip index of Warsaw, which is by far the
biggest bourse in the region, fell half a percent, retreating
from three-week highs reached on Thursday.
    But Budapest's index was the highest since Sept. 11,
jumping 1 percent as the shares of heavy-weight OTP Bank
 dashed through a psychological line at 10,000 forints,
gaining almost 3 percent.
    Currencies and government bonds in the European Union's
eastern wing were treading water as sentiment in emerging
markets was modestly positive.
    The Italian government's decision on a higher-than-expected
budget goal boosted Italian bonds yields and soured sentiment in
European markets.  
    But the Bund market, which is often watched in Central
Europe as a benchmark, was calm.
    A drop in underlying inflation in the euro zone challenged
expectations for a rise late this year which would lay the
ground for tighter policy from the European Central Bank, which
is also closely watched in Central Europe.
    In the region, Slovenia was the first to report September
inflation figures. It said annual inflation rose to 2.2 percent
from 2 percent in August.
    The figures are unlikely to trigger inflation concerns
elsewhere in the region, analysts said.
    Fuel prices are pushing headline inflation higher, and
coupled with a tobacco excise tax hike in Hungary, the index may
tick up to 3.5 percent in September from 3.4 percent in August,
Raiffeisen analyst Zoltan Torok told Reuters.
    Hungary's central bank is keeping its main interest rate at
the region's lowest level, 0.9 percent, and has not given
signals for a rise, even though it made changes in its toolkit
last week which it said prepared it for monetary tightening if
needed.
    Torok said he did not expect the upcoming inflation figure
to put a pressure on the forint, which eased by 0.1
percent on Friday to 324.15.
    "If inflation moves close to 4 percent (the top of the
bank's 2-4 percent target range), that is already a signal which
the market would not ignore," he added.
    Hungarian forward rate agreements price in a rise in the
3-month interbank BUBOR rate to the central bank's main
rate, while Hungarian government bonds were flat.
    "But it is hard to see how that will happen, given the
actual policy, and seeing that the BUBOR rate again dropped
today," one Budapest-based fixed income trader said.
    "The bank seems to a hold a grip on short-term interest
rates," the trader added.
    The rate dropped one basis points to 0.17 percent, only one
tick above the past three months' lowest level.
    Czech domestic markets were closed for holiday. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1150 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6960   25.7000    +0.02%    -0.60%
 crown      >                                       
 Hungary    <EURHUF=  324.1500  323.8000    -0.11%    -4.08%
 forint     >                                       
 Polish     <EURPLN=    4.2745    4.2728    -0.04%    -2.30%
 zloty      >                                       
 Romanian   <EURRON=    4.6635    4.6650    +0.03%    +0.35%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4313    -0.05%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.2000  118.3400    +0.12%    +0.25%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Budapest             36846.54  36471.35    +1.03%    -6.43%
 Warsaw                2302.86   2315.07    -0.53%    -6.43%
 Bucharest             8433.79   8446.41    -0.15%    +8.77%
 Ljubljana  <.SBITOP    828.18    834.95    -0.81%    +2.70%
            >                                       
 Zagreb                1780.01   1787.43    -0.42%    -3.41%
 Belgrade   <.BELEX1    724.13    725.74    -0.22%    -4.69%
            5>                                      
 Sofia                  624.70    623.10    +0.26%    -7.79%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Poland                                                     
   2-year   <PL2YT=R    1.5690   -0.0060   +211bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.5440   -0.0090   +267bps     +4bps
            R>                                      
   10-year  <PL10YT=    3.2630    0.0220   +279bps     +8bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Hungary                  0.39      0.62      0.89      0.17
                                                    
 Poland                   1.77      1.79      1.84      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Matthew Mpoke Bigg)
  
 
 
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