May 2, 2017 / 2:43 PM / 3 months ago

CEE MARKETS-Czech government collapse has limited impact on crown

    * Czech government to resign, keeping crown in the red
    * Czech, Hungarian, Polish PMIs underpin steady, strong
growth
    * Fed meeting, U.S. data, French vote viewed as risks

 (Updates to include Czech government collapse, zloty rebound)
    By Sandor Peto
    BUDAPEST, May 2 (Reuters) - Strong manufacturing surveys
failed to lift most Central European currencies on Tuesday, with
the crown easing after Czech Prime Minister Bohuslav Sobotka
said he would resign along with the entire cabinet. 
    Investors were also cautious ahead of the Federal Reserve's
two-day meeting and the second round of France's presidential
election on Sunday.
    In the Czech Republic, Sobotka said he would resign later
this week along with his cabinet in response to a row with
Finance Minister Andrej Babis over his past business activities.
    Elections, which had been due to take place in October, may
now be held earlier.
    The collapse of the Czech government added to rising
domestic political risks across the region, coming days after
Croatia's ruling coalition split due to differences over the
handling of a financial crisis at Agrokor, the country's biggest
private firm.
    However, investor reaction was limited. Babis' centrist ANO
movement leads Sobotka's centre-left Social Democrats by a
double-digit margin in most opinion polls.  
    The crown eased only 0.1 percent against the euro
to 26.893 by 1322 GMT and the main index of the Prague Stock
Exchange shed half a percent. 
    Both markets were already weaker before Sobotka's
announcement, which did not come as a complete surprise but
still weighed on sentiment.
    Czech bonds rose after JPMorgan, which runs the most widely
used emerging debt indexes, added Czech papers to its GBI-EM
index as of Friday.
    Czech bond yields dropped by 3-12 basis points, with 10-year
bond yields falling 12 basis points to trade at 0.87 percent.
    Croatia cut its offer at a one-year Treasury bill auction,
with the yield remaining flat at 0.45 percent.
    Regional assets mostly failed to benefit from purchasing
manager surveys (PMIs) from the Czech Republic, Hungary and
Poland which indicated continuing economic growth in Central
Europe.
    The Czech and Polish figures were better than expected, but
international concerns kept a lid on asset prices.
    Investors awaited the Fed, which is seen holding interest
rates on Wednesday after its meeting but may hint it is on track
for a rate rise in June. The French election result is another
concern. Centrist candidate Emmanuel Macron is expected to win
the vote on Sunday, but a strengthening of support for the
French far right could unnerve investors.

    The Polish zloty, the region's most liquid
currency, outperformed, reversing an early slide to touch a
20-month high of 4.203 against the euro, while Warsaw's main
stock index tested 23-month highs.
    "Foreign investors don't want to bet on zloty weakening,"
ING Bank analysts said in a note.
              CEE        SNAPS   AT  1522          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             26.89  26.85  -0.13  0.42%
                            30     90      %  
 Hungary                 312.1  312.0  -0.03  -1.06
 forint                    300    400      %      %
 Polish                  4.208  4.219   +0.2  4.66%
 zloty                       0      3     7%  
 Romanian                4.548  4.536  -0.26  -0.30
 leu                         5      7      %      %
 Croatian                7.455  7.466   +0.1  1.34%
 kuna                        0      5     5%  
 Serbian                 123.0  123.0   +0.0  0.27%
 dinar                     200    600     3%  
 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                  1002.  1007.  -0.51   +8.8
                            77     87      %     1%
 Budapest                32924  32956  -0.10   +2.8
                           .61    .30      %     8%
 Warsaw                  2392.  2376.   +0.6   +22.
                            36     87     5%    82%
 Bucharest               8231.  8230.   +0.0   +16.
                            69     46     1%    18%
 Ljubljana               782.3  788.2  -0.75   +9.0
                             2      5      %     2%
 Zagreb                  1906.  1901.   +0.2  -4.45
                            14     87     2%      %
 Belgrade     <.BELEX15  720.6  728.9  -1.14   +0.4
              >              4      4      %     6%
 Sofia                   662.0  657.2   +0.7   +12.
                             6      9     3%    90%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.02  -0.02   +071  -3bps
              >              3      7    bps  
   5-year     <CZ5YT=RR  0.103  -0.09   +048  -10bp
              >                     2    bps      s
   10-year    <CZ10YT=R  0.872  -0.11   +054  -12bp
              R>                    6    bps      s
 Poland                                            
   2-year     <PL2YT=RR   2.01  0.025   +274   +2bp
              >                          bps      s
   5-year     <PL5YT=RR  2.906  0.004   +328  -1bps
              >                          bps  
   10-year    <PL10YT=R  3.471  0.038   +314   +3bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.32    0.4    0.5      0
              PRIBOR=>                        
 Hungary              <   0.24   0.33   0.44   0.16
              BUBOR=>                         
 Poland               <  1.752  1.782  1.834   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Luiza Ilie in Bucharest and Bartosz
Chmielewski in Warsaw; Editing by Susan Fenton)
  
 
 

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