October 9, 2019 / 9:58 AM / a month ago

CEE MARKETS-Forint extends drop, Czech bond auction in focus

    PRAGUE, Oct 9 (Reuters) - Central European currencies dipped
on Wednesday, with the Hungarian forint and Czech crown
extending falls into a fourth straight session as worries over
U.S.-China trade talks and Britain's exit from the European
Union hung over markets.
    Bond yields were mixed, but mostly higher. Czech markets
positioned before an auction of 8- and 15-year bonds. Both drew
strong demand of more than 15 billion and 12 billion crowns,
respectively, at a September sale.        
    The forint inched down less than 0.1% to 334.21 to
the euro a day after Hungarian inflation data showed continued
slowing. The zloty was steady at 4.32, giving up early
gains after testing a 3-1/2-week high in the morning.
    The region, where growth has stayed on solid ground due to
strong domestic demand even amid economic slowdowns in western
trade partners, has been held back by worries over global trade.
    On Wednesday, hopes were also fading for Britain to reach a
Brexit deal.
    "Politics weighs on the market, but so far has not
translated into a change in assets value. Investors wait for the
conclusion of U.S.-China trade talks and whether the EU reaches
an agreement with Britain on Brexit," Bank Millennium in Warsaw
said, adding geopolitical risks involving Turkey and Syria also
    Stocks held up, though, with Prague and Budapest
 leading gains. 
    In Czech markets, the crown was down almost 0.1%
at 25.825 to the euro at 0915 GMT.
    The currency has languished with central European peers
since the summer months and remains an inflationary risk for the
Czech central bank, which unlike other monetary policymakers in
the world has kept open a rate hike debate.
    The crown's three-month moving average was at 25.71 to the
euro on Wednesday, versus expectations in the central bank's
outlook for an average exchange rate of 25.4 in the third
quarter and firming to 25.2 this quarter.
    Forward rate markets have not priced in much chance of a
hike in the near term and still see a cut over a one year
    Goldman Sachs expects the Czech bank to keep its key policy
rate at 2.00% through 2019 and 2020 but said in a note it
thought the market was "significantly under-pricing the risk of
higher rates in the near term and over-pricing the risk of rate
cuts beyond this."
    "While front-end rates have sold off significantly in the
past 2 months, we continue to think the market’s implied rate
path for Czech rates over the next 1-2 years is too low," it

                                CEE MARKETS        SNAPSHOT    AT                        
                                                                 1115 CET                
                                                   Latest      Previous        Daily     Change
                                                   bid         close           change    in 2019
 EURCZK=    Czech crown                            25.8250     25.8080         -0.07%    -0.46%
 EURHUF=    Hungary forint                         334.2100    333.9550        -0.08%    -3.93%
 EURPLN=    Polish zloty                           4.3220      4.3227          +0.02%    -0.75%
 EURRON=    Romanian leu                           4.7500      4.7505          +0.01%    -2.02%
 EURHRK=    Croatian kuna                          7.4260      7.4213          -0.06%    -0.22%
 EURRSD=    Serbian dinar                          117.5100    117.4500        -0.05%    +0.67%
            Note: daily change  calculated from                                1800 CET  
                                                   Latest      Previous        Daily     Change
                                                               close           change    in 2019
 .PX        Prague                                 1000.37     994.0700        +0.63%    +1.40%
 .BUX       Budapest                               39602.88    39491.52        +0.28%    +1.19%
 .WIG20     Warsaw                                 2133.36     2131.83         +0.07%    -6.29%
 .BETI      Bucharest                              9497.88     9487.05         +0.11%    +28.63%
 .SBITOP    Ljubljana                              862.60      868.98          -0.73%    +7.25%
 .CRBEX     Zagreb                                 1927.76     1929.55         -0.09%    +10.23%
 .BELEX15   Belgrade                               748.67      748.91          -0.03%    -1.71%
 .SOFIX     Sofia                                  560.58      561.05          -0.08%    -5.70%
                                                   Yield       Yield           Spread    Daily
                                                   (bid)       change          vs Bund   change in
            Czech Republic                                                               spread
 CZ2YT=RR   2-year                                 1.2650      -0.0030         +202bps   -1bps
 CZ5YT=RR   5-year                                 1.0390      -0.0470         +184bps   -6bps
 CZ10YT=RR  10-year                                1.2480      0.0060          +182bps   -2bps
 PL2YT=RR   2-year                                 1.4970      -0.0010         +225bps   -1bps
 PL5YT=RR   5-year                                 1.6730      0.0320          +248bps   +2bps
 PL10YT=RR  10-year                                1.9210      0.0280          +249bps   +0bps
                                FORWARD            RATE        AGREEMENT                 
                                                   3x6         6x9             9x12      3M interbank
            Czech Rep                              2.25        2.20            2.06      2.17
            Hungary                                0.26        0.31            0.34      0.21
            Poland                                 1.72        1.70            1.67      1.72
            Note: FRA quotes    are for ask prices                                       

($1 = 23.5500 Czech crowns)

 (Reporting by Jason Hovet in Prague and Agnieszka Barteczko in
Warsaw; Editing by Mark Potter)
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