February 7, 2017 / 12:26 PM / 6 months ago

CEE MARKETS-Romania's Leu currency extends rebound as protests persist

8 Min Read

* Leu recovers, fundamentals offset political uncertainty
    * Romanian politics will remain shaky
    * Czech, Hungarian industrial output data below forecasts

    By Sandor Peto
    BUDAPEST, Feb 7 (Reuters) - The leu extended its recovery on
Tuesday after its sharp fall during mass protests last week,
outperforming other Central European currencies as Romania's
healthy growth outlook offset  uncertainty surrounding public
calls for the government to quit.
    The leu strengthened 0.3 percent to 4.4919 against
the euro as the Romanian central bank kept its interest rates
unchanged on Tuesday. Most analysts expect interest rates to
start to rise around the end of 2017. 
    Elsewhere, Hungary's forint and the Polish zloty
 firmed marginally. 
    The Romanian currency hit 7-month lows at 4.554 last week
after a government decree to decriminalize some graft offences
unleashed the biggest mass protests since the collapse of
Communism in 1989.
    It rebounded after the decree was repealed on Sunday, but
smaller protests against the one-month-old leftist government
persist. While its majority in parliament is expected to help it
survive a no-confidence vote on Wednesday, the president piled
pressure on his prime minister with a stinging attack.
  
    "The government continues to push its limits," Raiffeisen
analyst Stephan Imre said in a note.
    Analysts said forecasts of robust economic growth, seen near
4 percent this year, was supporting the leu, analysts said.
    "Economic growth is fundamentally strong and the budget is
loose," said Gabor Dunai, analyst of OTP Bank.
    "That is expected to accelerate inflation and if that is
true, the central bank could start to normalize (lift) interest
rates later this year," he said.
    Analysts said central Europe's strong growth outlook and
relatively high yields has so far shielded its assets from the
market jitters rippling through markets ahead of unpredictable
elections in France, Germany and perhaps Italy.
    A Reuters poll published on Tuesday showed the Czech crown
could surge almost five percent against the euro in the next 12
months, well outperforming Central European peers, as the
central bank is seen removing its cap on the crown's value.
 
    "There are big political risks both in America and the euro
zone right now and relative to that (Central Europe) looks quite
stable now," said Erste analyst Gergely Urmossy, referring to
upcoming elections in France and Germany.
    Separately, German Chancellor Angela Merkel's visit to
Warsaw on Tuesday has raised hopes of a thaw in relations, amid
signs Poland's conservative rulers are keen to repair the
co-operation essential for European Union (EU) attempts to
handle economic and political problems ahead. 
    Hungarian and Czech December industrial output figures were
below expectation, but analysts said output could still pick up
across the region this year.
    In light of a plunge in industrial output in Germany, the
region's biggest export market, Hungary's 0.5 percent annual
decline "can be regarded as a positive surprise", said ING
analyst Peter Virovacz in a note.
    One Budapest-based trader said regional currencies may also
benefit from the closing of some selling positions opened in the
past weeks due to expectations for a surge of the dollar.
    
              CEE        SNAPS   AT  1141          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.05
                            00     45     2%      %
 Hungary                 309.8  309.9   +0.0  -0.33
 forint                    500    800     4%      %
 Polish                  4.298  4.295  -0.08  2.45%
 zloty                       5      0      %  
 Romanian                4.491  4.505   +0.3  0.96%
 leu                         9      3     0%  
 Croatian                7.444  7.450   +0.0  1.49%
 kuna                        0      7     9%  
 Serbian                 123.7  123.8   +0.1  -0.28
 dinar                     000    400     1%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  943.7  942.0   +0.1   +2.4
                             0      6     7%     0%
 Budapest                32537  32388   +0.4   +1.6
                           .00    .91     6%     7%
 Warsaw                  2084.  2089.  -0.25   +7.0
                            46     61      %     1%
 Bucharest               7550.  7586.  -0.48   +6.5
                            06     55      %     6%
 Ljubljana               748.1  746.6   +0.2   +4.2
                             7      7     0%     6%
 Zagreb                  2193.  2182.   +0.5   +9.9
                            69     06     3%     7%
 Belgrade     <.BELEX15  703.9  700.1   +0.5  -1.87
              >              5      2     5%      %
 Sofia                   602.6  606.4  -0.62   +2.7
                             9      5      %     7%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.69  0.021   +009   +4bp
              >              5           bps      s
   5-year     <CZ5YT=RR  -0.04  0.042   +037   +6bp
              >              7           bps      s
   10-year    <CZ10YT=R  0.475  0.033   +012   +5bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.206  0.027   +299   +5bp
              >                          bps      s
   5-year     <PL5YT=RR  3.146  0.013   +357   +3bp
              >                          bps      s
   10-year    <PL10YT=R  3.819  0.032   +347   +5bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.26   0.25   0.28      0
              PRIBOR=>                        
 Hungary              <   0.39   0.52   0.63   0.25
              BUBOR=>                         
 Poland               <   1.78   1.82   1.91   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Reporting by Sandor Peto; editing by Richard Lough)

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