April 20, 2017 / 8:22 AM / 5 months ago

CEE MARKETS-Crown tests earlier cap level, French vote a risk on CEE fx

    * Crown weakens near earlier cap level at 27 vs the euro
    * French elections, global inflation retreat are risks to
CEE fx
    * No sign of central bank hawkishness despite surge in wages

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, April 20 (Reuters) - The Czech crown
extended its losses against the euro on Thursday as investors
sitting on a huge pile of long positions struggle to take
profits, with risks from Sunday's French elections weighing on
sentiment.
    The worry over France is that the far-right or far-left
candidate - both anti-EU and anti-euro - might make the decisive
second round.
    The crown is vulnerable after investors bought tens of
billions of euros worth of the currency in the past months,
speculating on a surge.
    The Czech central bank removed its cap, which had kept the
crown weaker than 27 against the euro since 2013, two weeks ago,
and most of the crown long positions are still in the market,
with investors waiting for stronger levels to take profit.
    The crown, after an initial surge following the
cap exit, has retreated. On Thursday it almost touched the
earlier cap level, falling 0.3 percent to 26.957 by 0731 GMT.
Other Central European currencies were mixed.
    "It is a combination of the huge positioning (in the crown)
and external factors," one Prague-based dealer said, adding that
a plunge was unlikely for now, but a breach of 27.05 could lead
to an even bigger fall.
    Investors scrambled a week ago to buy Czech Treasury bills
to shorten the maturity of their Czech debt portfolio and cut
risk. The government will again auction bills on Thursday.
    Commerzbank analysts said in a note that increased
volatility was no surprise, given that some market participants
had projected a slump even to 29, and the Czech central bank
(CNB) has also said that it will take at least tow months for
the excessive crown long positions to clear out.
    It is also a risk that inflation is retreating again
globally, and if that triggers speculation for a reintroduction
of a cap, a crown sell-off could follow. 
    "Admittedly, we do not see enough evidence that such a turn
of events is actually occurring globally...(but) the latest
behaviour of US and Euro zone bond yields appears to reflect
some sort of anti-inflationary caution," Commerzbank said.
    Central banks in the region have not showed signs of worry
over inflation or intentions to move towards less loose policies
despite a surge in wages which in theory could lift prices.
    Poland reported 5.2 percent annual rise in wages for March
on Wednesday and Hungary a 10.7 percent jump on Thursday.
    Romania, where the net average wage was up 14.7 percent in
February, plans further wage increases.
    
              CEE        SNAPS   AT  0931          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             26.95  26.87  -0.30  0.19%
                            70     65      %  
 Hungary                 312.9  313.6   +0.2  -1.32
 forint                    500    400     2%      %
 Polish                  4.256  4.251  -0.11  3.48%
 zloty                       0      4      %  
 Romanian                4.539  4.538  -0.03  -0.10
 leu                         5      4      %      %
 Croatian                7.446  7.447   +0.0  1.47%
 kuna                        0      5     2%  
 Serbian                 123.4  123.5   +0.0  -0.10
 dinar                     700    750     9%      %
 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                  969.6  967.5   +0.2   +5.2
                             2      4     1%     1%
 Budapest                32777  32688   +0.2   +2.4
                           .69    .09     7%     2%
 Warsaw                  2271.  2274.  -0.13   +16.
                            71     69      %    62%
 Bucharest               8180.  8196.  -0.19   +15.
                            78     11      %    47%
 Ljubljana               774.3  779.3  -0.64   +7.9
                             1      3      %     0%
 Zagreb                  1948.  1962.  -0.67  -2.30
                            96     10      %      %
 Belgrade     <.BELEX15   0.00  727.4   +0.0  -100.
              >                     4     0%    00%
 Sofia                   656.7  658.6  -0.29   +11.
                             1      1      %    98%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.06  0.018   +074   +3bp
              >              7           bps      s
   5-year     <CZ5YT=RR   0.22  0.002   +070   +2bp
              >                          bps      s
   10-year    <CZ10YT=R  0.984  -0.02   +077  -3bps
              R>                    4    bps  
 Poland                                            
   2-year     <PL2YT=RR  2.011  -0.04   +282  -3bps
              >                     4    bps  
   5-year     <PL5YT=RR  2.855  0.004   +333   +2bp
              >                          bps      s
   10-year    <PL10YT=R  3.385  0.017   +317   +1bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.31   0.33   0.39      0
              PRIBOR=>                        
 Hungary              <   0.22  0.295   0.37   0.16
              BUBOR=>                         
 Poland               <  1.748  1.763  1.799   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Radu Marinas in Bucharest)
  
 
 

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