December 14, 2016 / 2:57 PM / 7 months ago

CEE MARKETS-Budapest stocks at record high on hopes for encouraging Fed comments

9 Min Read

* Budapest stocks at record high, Bucharest a three-month
high
    * Fed rate hike priced in, not very hawkish comments hoped
    * CEE bond yields fall, short-dated Romanian bonds in the
red
    * Croatian central bank sells kuna at auction to weaken it

 (Adds Croatian central bank FX intervention, new comment)
    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, Dec 14 (Reuters) - Central European
assets gained on Wednesday, with Budapest stocks reaching a
record high, on optimism the Federal Reserve will not signal
U.S. interest rates are going to rise higher and faster than is
now expected.
    Investors waiting for the Fed's comments shrugged off local
factors, including political uncertainty in Romania after
Sunday's elections.
    Comments by U.S. president-elect Donald Trump have led to
expectations for accelerating inflation and higher interest
rates. Higher U.S. rates make assets in emerging economies less
attractive.
    Investors expect the Fed to raise its main rate by 25 basis
points, but that change has been priced in. If the comments are
not very hawkish, emerging market assets may see some buying.
    "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.
    Budapest's stock index, one of the best performers in
the world in the past two years, maintained its momentum. It
rose past 31,000 points and set a record high for the second
straight day. It was up 1.3 percent at 1355 GMT.
    "Shaking off technical barriers, the stocks may have
attracted even more buyers," said Equilor brokerage analyst
Zoltan Varga.
    Bucharest stocks gained 0.3 percent. Their main index
 climbed to its highest since September despite political
uncertainty after Sunday's elections and weak industrial output
data.
    The election's winner, the Social Democrat Party, declined
to meet the president on Wednesday for talks on a new
government. The party's leader, Liviu Dragnea, said the party
would propose a candidate for prime minister only after a new
parliament is sworn in.
    The party also said on Tuesday that it 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 14
basis points at 3.51 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 retreated, reflecting caution before the
Fed meets.
    The leu, after touching a four-week low against
the euro, traded at 4.5138, down 0.15 percent.
    "There's large buying by an offshore player right now.
Domestic politics have had no impact on the market," one
Bucharest-based dealer said.
    Croatia's kuna shed 0.3 percent to 7.545 versus
the euro as the central bank bought euros at an auction to
weaken the kuna, for which it maintains a managed float
. 
    
           CEE MARKETS         SNAPSHOT     AT  1455 CET          
                               CURRENCIES                         
                               Latest      Previous  Daily    Chan
                                                              ge
                               bid         close     change   in
                                                              2016
 Czech                            27.0220   27.0355   +0.05%  -0.0
 crown                                                          9%
 Hungary                         314.8000  314.4850   -0.10%  -0.0
 forint                                                         5%
 Polish                            4.4430    4.4408   -0.05%  -4.1
 zloty                                                          6%
 Romanian                          4.5138    4.5069   -0.15%  0.12
 leu                                                             %
 Croatian                          7.5450    7.5235   -0.28%  1.25
 kuna                                                            %
 Serbian                         123.4000  123.4800   +0.06%  -1.5
 dinar                                                          6%
 Note:     calculated from     previous    close at  1800         
 daily                                               CET      
 change                                                       
                               STOCKS                             
                               Latest      Previous  Daily    Chan
                                                              ge
                                           close     change   in
                                                              2016
 Prague                            907.11    911.09   -0.44%  -5.1
                                                                5%
 Budapest                        31328.99  30938.13   +1.26%   +30
                                                              .97%
 Warsaw                           1921.16   1919.49   +0.09%   +3.
                                                               34%
 Buchares                         7004.53   6985.06   +0.28%   +0.
 t                                                             00%
 Ljubljan                          711.11    704.90   +0.88%   +2.
 a                                                             15%
 Zagreb                           1983.57   1984.90   -0.07%   +17
                                                              .40%
 Belgrade                          719.46    725.63   -0.85%   +11
                                                              .70%
 Sofia                             583.12    580.85   +0.39%   +26
                                                              .52%
                               BONDS                              
                               Yield       Yield     Spread   Dail
                                                              y
                               (bid)       change    vs Bund  chan
                                                              ge
                                                              in
 Czech                                                        spre
 Republic                                                     ad
   2-year                          -0.747     0.054   +001bp   +6b
                                                           s    ps
   5-year                          -0.153     -0.01   +031bp   +1b
                                                           s    ps
                                    0.526     -0.02   +021bp   +1b
 10-year                                                   s    ps
 Poland                                                           
   2-year                            1.97         0   +273bp   +1b
                                                           s    ps
   5-year                            2.76    -0.059   +322bp  -4bp
                                                           s     s
                                    3.493    -0.053   +317bp  -2bp
 10-year                                                   s     s
           FORWARD             RATE        AGREEMENT              
                               3x6         6x9       9x12     3M
                                                              inte
                                                              rban
                                                              k
 Czech                               0.28      0.24     0.22     0
 Rep                                                          
 Hungary                             0.38      0.42      0.5  0.39
 Poland                              1.75     1.765    1.795  1.73
 Note:     are for ask prices                                     
 FRA                                                          
 quotes                                                       
 **************************************************************
 
 (Additional reporting by Marcin Goettig in Warsaw; Editing by
Larry King)

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