December 14, 2016 / 9:51 AM / in 10 months

CEE MARKETS-Budapest stocks hit record on hope for mild Fed comments

* Budapest stocks hit record high for second day in a row
    * Romanian stocks hit 2-and-1/2-month high despite politics
    * Fed rate hike priced in, not very hawkish comments hoped
    * CEE bond yields fall, short-dated Romanian bonds in the
red

    By Sandor Peto and Marcin Goettig
    BUDAPEST/WARSAW, Dec 14 (Reuters) - Central European assets
firmed on Wednesday, with Budapest stocks hitting a record high,
as investors were optimistic that the Federal Reserve will not
signal a higher-than-expected interest rate trajectory.
    Awaiting the Fed's comments, investors shrugged off local
factors, including political uncertainty in Romania after
Sunday's elections.
    Higher U.S. rates make assets in emerging economies
relatively less attractive, and the pledges of U.S.
president-elect Donald Trump have lifted expectations for higher
inflation and interest rates.
    Investors expect the Fed to lift its main rate by 25 basis
points, but that change has been priced in.
    "The main market interest will be in whether U.S.
authorities will adjust their projections in terms of economy,
inflation and especially the key rate path," Raiffeisen analyst
Wolfgang Ernst said in a note.
    If the comments are not very hawkish, emerging market assets
may even see some buying.
    Budapest's stock index, one of the best performers in
the world in the past two years, maintained its momentum even
though Western European indices  retreated.
    The Budapest index dashed through the 31,000-point line,
setting a record high for the second session in a row, up 0.75
percent at 0916 GMT.
    "Shaking off technical barriers, the stocks may have
attracted even more buyers," said Equilor brokerage analyst
Zoltan Varga.
    Bucharest stocks firmed only mildly, but that was enough for
the main index to hit its highest level since September
despite political uncertainty after Sunday's Romanian elections
and weak industrial output data. 
    The election winner Social Democrat Party declined to meet
the president on Wednesday for talks on a new government, saying
they would wait and propose a prime minister candidate only
after a new parliament is sworn in. 
    The party's leader also said on Tuesday that they would
postpone tax cuts planned for 2017, good news for investors who
fear a budget deficit overshoot. 
    Romania's 10-year bond yield was bid lower by 7
basis points at 3.58 percent, but short-term bonds eased,
continuing to underperform regional peers like Hungary, where
short-dated bills and bonds traded near record lows.
    Regional currencies were flat after an initial firming,
reflecting caution ahead of the Fed meeting. The zloty 
traded at 4.44 against the euro.
    "The zloty may drift towards 4.41/EUR, but much depends on
the rhetoric of the Fed," Bank Pekao said in a note, adding that
hawkish Fed comments could send the currency to 4.48 per euro.
    
           CEE         SNAPSHOT    AT  1016 CET               
           MARKETS                                   
                       CURRENCIES                             
                       Latest     Previous   Daily   Change
                       bid        close      change  in 2016
 Czech                   27.0250    27.0355   +0.04     -0.10%
 crown                                            %  
 Hungary                314.4500   314.4850   +0.01      0.06%
 forint                                           %  
 Polish                   4.4400     4.4408   +0.02     -4.10%
 zloty                                            %  
 Romanian                 4.5075     4.5069  -0.01%      0.26%
 leu                                                 
 Croatian                 7.5230     7.5235   +0.01      1.54%
 kuna                                             %  
 Serbian                123.3800   123.4800   +0.08     -1.55%
 dinar                                            %  
 Note:     calculated  previous   close at   1800             
 daily     from                              CET     
 change                                              
                       STOCKS                                 
                       Latest     Previous   Daily   Change
                                  close      change  in 2016
 Prague                   914.69     911.09   +0.40     -4.35%
                                                  %  
 Budapest               31171.28   30938.13   +0.75    +30.31%
                                                  %  
 Warsaw                  1922.82    1919.49   +0.17     +3.42%
                                                  %  
 Buchares                6989.66    6985.06   +0.07     -0.21%
 t                                                %  
 Ljubljan                 706.36     704.90   +0.21     +1.47%
 a                                                %  
 Zagreb                  1981.20    1984.90  -0.19%    +17.26%
 Belgrade                 724.21     725.63  -0.20%    +12.44%
 Sofia                    581.15     580.85   +0.05    +26.09%
                                                  %  
                       BONDS                                  
                       Yield      Yield      Spread  Daily
                       (bid)      change     vs      change in
                                             Bund    
 Czech                                               spread
 Republic                                            
   2-year                  -0.81     -0.008  -005bp      +1bps
                                                  s  
   5-year                 -0.176     -0.034   +028b      -1bps
                                                 ps  
           <CZ10YT=RR      0.526      -0.02   +021b      +1bps
 10-year   >                                     ps  
 Poland                                                       
   2-year                   1.97          0   +273b      +1bps
                                                 ps  
   5-year                  2.784     -0.037   +324b      -2bps
                                                 ps  
           <PL10YT=RR      3.518      -0.04   +320b      -1bps
 10-year   >                                     ps  
           FORWARD     RATE       AGREEMENT                   
                       3x6        6x9        9x12    3M
                                                     interbank
 Czech             <P       0.27       0.24    0.22          0
 Rep       RIBOR=>                                   
 Hungary           <B       0.36        0.4     0.5       0.39
           UBOR=>                                    
 Poland            <W      1.755      1.765     1.8       1.73
           IBOR=>                                    
 Note:     are for                                            
 FRA       ask prices                                
 quotes                                              
 *************************************************************
 *
 

 (Reporting by Sandor Peto; Editing by Keith Weir)

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