May 23, 2018 / 9:55 AM / a month ago

CEE MARKETS-Turkish lira's plunge hits risk appetite, dollar rally weighs

    * Lira's drop to all-time lows feeds risk aversion
    * Currencies approach multi-month lows as dollar rallies
    * Crown joins zloty and forint fall, reaches weakest 2018
level
    * Czech bond auction may draw less demand on increased
supply

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, May 23 (Reuters) - Central Europe's main
currencies approached multi-month lows on Wednesday as weak
manufacturing data knocked the euro down further against the
dollar, while the Turkish lira's  persistent decline
fuelled risk aversion in emerging markets.
   The region's assets have taken a beating this month as a
dollar and U.S. bond yield rally prompted a sell-off in emerging
markets, but they have outperformed other emerging markets
including Turkey, where the lira is at record lows on concern
about President Tayyip Erdogan's influence on monetary policy.

    Politics rarely have a direct influence on markets in the
European Union's fast-growing and relatively stable economies
which have been tightly integrated with the euro zone.
    Continued dollar buying sent the region's most liquid
currencies, the forint and the zloty into
retreat at the opening.
    Losses for the relatively stable crown widened
after May Purchasing Managers' Index (PMI) data showed a
sharper-than-expected slowdown in growth in the euro zone,
Central Europe's main export market and a major financier of its
investments. 
    By 0847 GMT, the crown traded at 25.724 against the euro,
down 0.1 percent, rebounding from an intraday low of 25.8547,
its weakest level this year, while the zloty fell half
a percent, the forint a third of a percent, and the
leu 0.1 percent.
    Thin trade contributed to the crown's initial weakness, one
Prague-based dealer said.
    Dividend outflows are also weighing on the crown, while some
investors have closed crown positions on the view that the Czech
central bank (CNB) may well not raise interest rates earlier
than November, Komercni Banka analysts said in a note.
    But ING economist Jakub Seidler said any crown weakening
would be temporary.
    "The domestic economic development still requires tighter
monetary conditions which are not being delivered by the crown
at the moment," he said.
    Demand at Czech government bond auction might be weaker than
usual, as more issuance was due in June as part of a rise in
planned quarterly sales, Komercni said in a separate note. 
    Raiffeisen analyst Gunter Deuber said in a note that the
crown's appreciation potential made Czech bonds attractive.
    The yield on 5-year Czech bonds was bid higher by 7 basis
points (bps), at 1.475 percent, while the corresponding Polish
yield dropped 1 bps to 2.51 percent.
    Warsaw led a fall for equities in the region, in tandem with
a decline in Western European markets, with its blue-chip index
 dropping 1.4 percent.
            CEE       SNAPSHOT   AT                         
            MARKETS             1047 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7240   25.6950    -0.11%    -0.71%
 crown      >                                       
 Hungary    <EURHUF=  318.9900  317.9500    -0.33%    -2.53%
 forint     >                                       
 Polish     <EURPLN=    4.3030    4.2814    -0.50%    -2.94%
 zloty      >                                       
 Romanian   <EURRON=    4.6310    4.6270    -0.09%    +1.05%
 leu        >                                       
 Croatian   <EURHRK=    7.3850    7.3832    -0.02%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1300    +0.07%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1104.00  1103.290    +0.06%    +2.40%
                                       0            
 Budapest             35943.80  36400.77    -1.26%    -8.72%
 Warsaw                2216.93   2248.71    -1.41%    -9.93%
 Bucharest             8377.22   8429.08    -0.62%    +8.04%
 Ljubljana  <.SBITOP    897.08    896.06    +0.11%   +11.25%
            >                                       
 Zagreb                1854.79   1859.77    -0.27%    +0.65%
 Belgrade   <.BELEX1    744.88    743.26    +0.22%    -1.96%
            5>                                      
 Sofia                  642.91    644.44    -0.24%    -5.10%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.0050    0.1200   +162bps    +14bps
            R>                                      
   5-year   <CZ5YT=R    1.4750    0.0700   +160bps    +11bps
            R>                                      
   10-year  <CZ10YT=    1.9890    0.0050   +148bps     +6bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6160    0.0090   +223bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.5100   -0.0110   +263bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2330   -0.0130   +273bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.03      1.19      1.33      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.40      0.52      0.11
                                                    
 Poland                   1.74      1.76      1.83      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

 (Writing by Sandor Peto
Editing by Louise Ireland)
  
 
 
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