September 9, 2019 / 9:41 AM / a month ago

CEE MARKETS-Currencies tread water as investors await ECB, local inflation data

    By Krisztina  Than
    BUDAPEST, Sept 9 (Reuters) - Central European currencies
were steady on Monday while stocks mostly rose as investors
shifted focus to the European Central Bank's meeting later this
week, when it is expected to cut interest rates.
    Expectations of a new wave of stimulus by the ECB have
supported assets in Central Europe amid lingering fears over
risks stemming from global trade tensions, a slowdown in Germany
and a potential no-deal British exit from the European Union.
    In a mild positive sign after a run of weak data, German
exports rose in July, data showed on Monday, marking an
unexpectedly solid start to the third quarter for Europe's
largest economy which has very close trade links with eastern
    Investors were awaiting the ECB's assessment of recession
risk and the inflation outlook on Thursday.
    "If the ECB turns out not as dovish as expected, a temporary
market disappointment will possibly drive core and Polish bond
yields higher," Santander Bank said in a note.
    Czech bond yields ticked up slightly on Monday. Besides the
ECB, investors will also be watching Czech and Hungarian
inflation data on Tuesday.
    Czech unemployment was unchanged at 2.7% in August,
confirming a tight labour market, which is expected to keep the
Czech central bank in a neutral gear even as the ECB and U.S.
Federal Reserve go loose on policy, analysts said. 
    "We don't see the CNB hiking rates if FX doesn't appreciate
enough compared to its forecast, while an announcement from the
ECB that it intends to renew QE can create further incentives
for the CNB to cut rates in 2020," Morgan Stanley said in a
    Analysts expect Czech headline inflation to stay at the
upper end of the central bank's tolerance band around its 2%
target. The median forecast in a Reuters poll sees the rate
easing a touch to 2.8% year on year in August from 2.9% in July.
    Economies in Central Europe have been growing faster than
the euro zone, driven largely by strong domestic demand, while  
labour markets across the region remain tight, struggling with
labour shortages. However, low inflation in the euro zone has
helped keep a lid on inflation in Central Europe.
    Hungarian core inflation, which reached the top of the
central bank's 2% to 4% target range in May, had retreated to
3.7% by July. August inflation data due on Tuesday is expected
to show a decline in headline inflation to 3.2% from 3.3% in
July. This will confirm the bank's dovish stance.
    "We continue to expect the NBH to use the liquidity channel
as its main tool for conducting monetary policy this and next
year with no change in the policy rate," Morgan Stanley said.
    The region's main currencies hovered in recent trading
ranges, with the zloty 0.2% firmer against the euro,
the Czech crown down 0.1% and the Hungarian forint
 flat, at 329.96 to the euro, off record lows of 331.85
hit at the end of last month.    
                   CEE      SNAPSHO   AT                      
                   MARKETS  T        1023              
                            Latest   Previou  Daily    Change
                            bid      close    change   in 2019
 EURCZK  Czech     <EURCZK  25.8640  25.8350   -0.11%   -0.61%
 =       crown     =>                                  
 EURHUF  Hungary   <EURHUF  330.000  330.130   +0.04%   -2.70%
 =       forint    =>             0        0           
 EURPLN  Polish    <EURPLN   4.3312   4.3404   +0.21%   -0.96%
 =       zloty     =>                                  
 EURRON  Romanian  <EURRON   4.7310   4.7307   -0.01%   -1.63%
 =       leu       =>                                  
 EURHRK  Croatian  <EURHRK   7.3975   7.4020   +0.06%   +0.17%
 =       kuna      =>                                  
 EURRSD  Serbian   <EURRSD  117.500  117.600   +0.09%   +0.68%
 =       dinar     =>             0        0           
         Note:     calculated from            1800            
         daily                                CET      
                            Latest   Previou  Daily    Change
                                     close    change   in 2019
 .PX     Prague             1035.63  1032.06   +0.35%   +4.97%
 .BUX    Budapest           40316.5  40312.4   +0.01%   +3.01%
                                  5        6           
 .WIG20  Warsaw    <.WIG20  2157.53  2122.60   +1.65%   -5.23%
 .BETI   Buchares           9259.27  9245.30   +0.15%   +25.40
         t                                                   %
 .SBITO  Ljubljan  <.SBITO   847.74   848.49   -0.09%   +5.41%
 P       a         P>                                  
 .CRBEX  Zagreb    <.CRBEX  1864.32  1864.80   -0.03%   +6.61%
 .BELEX  Belgrade  <.BELEX   748.37   745.80   +0.34%   -1.75%
 15                15>                                 
 .SOFIX  Sofia     <.SOFIX   574.41   574.17   +0.04%   -3.37%
                            Yield    Yield    Spread   Daily
                            (bid)    change   vs Bund  change
         Czech                                         spread
 CZ2YT=    2-year  <CZ2YT=   1.2270  -0.0080   +206bp    -2bps
 RR                RR>                              s  
 CZ5YT=    5-year  <CZ5YT=   0.9620   0.0590   +184bp    +4bps
 RR                RR>                              s  
 CZ10YT            <CZ10YT   1.2040   0.0140   +181bp    -2bps
 =RR     10-year   =RR>                             s  
 PL2YT=    2-year  <PL2YT=   1.6050   0.0250   +244bp    +1bps
 RR                RR>                              s  
 PL5YT=    5-year  <PL5YT=   1.8590   0.0460   +274bp    +3bps
 RR                RR>                              s  
 PL10YT            <PL10YT   2.0840   0.0720   +269bp    +4bps
 =RR     10-year   =RR>                             s  
                   FORWARD  RATE     AGREEME                  
                            3x6      6x9      9x12     3M
         Czech     <CZKFRA     2.10     1.97     1.80     2.14
         Rep       ><PRIBO                             
         Hungary   <HUFFRA     0.30     0.33     0.36     0.24
         Poland    <PLNFRA     1.73     1.72     1.71     1.72
         Note:     are for ask                                
         FRA       prices                              

 (Reporting by Jason Hovet in Prague and Krisztina Than in
Budapest; Editing by Susan Fenton)
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