June 11, 2019 / 1:25 PM / 15 days ago

UPDATE 1-CEE MARKETS-CPI rise fails to boost Czech crown as dollar consolidates

    * Czech CPI rises, CNB chief says hike is optimal next move
    * Czech markets remain split over interest rate outlook
    * CEE currencies retreat as dollar decline halts
    * Poland leads rise in bond yields as money flows into
equities 

 (Adds further Czech central bank comments, bonds, stocks)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 11 (Reuters) - A surprise rise in
Czech inflation failed to strengthen the crown on Tuesday as
Central European currencies pause this week after a rallying to
multi-week highs on global dollar selling.
    The greenback has weakened in the recent weeks on growing
expectations for Federal Reserve interest rate cuts but steadied
on Tuesday.
    While inflation has been moderate in developed economies, it
has been pushed higher by a surge in wages in the European
Union's fast-growing emerging markets.
    The correlation of the Czech crown's and the
forint's euro crosses with the dollar index is
the strongest this year.
    With the dollar consolidating, the forint eased 0.2% to
320.75 against the euro by 1241 GMT. The crown, the zloty
 and the leu shed 0.1%.
    Czech annual inflation picked up to 2.9% in May, above the
2.7% forecast by analysts.
    It would be optimal if the current pause in monetary policy
changes is followed by more interest rate growth as rates are
still not at normal levels, Czech central bank (CNB) Governor
Jiri Rusnok said.    
    That is a change compared to comments suggesting neutrality
after the CNB's latest interest rate hike in early May.
    Core inflation was marginally lower than expected and the
new figures bear out the message of the CNB's current forecast,
the bank said in a statement, adding that overall inflation
pressures were easing.
    Market participants remained split over the CNB interest
rate outlook after the figures. 
    Some analysts predict that the CNB will continue to increase
interest rates this year or next, but markets are pricing in an
easing as the European Central Bank is also expected to maintain
a loose policy.
    Yields on Czech domestic bonds and forward rate agreements
ticked slightly higher, with the 10-year bond yield
at around 1.61%.    
    "We (still) have nearly two rate cuts priced in (over the
next year) which is strongly overdone," a dealer said.
    Polish yields also rose, tracking Bunds and other euro zone
bonds as investments flowed into riskier equity markets after
the United States stepped back from imposing trade tariffs on
Mexico.
    The 10-year Polish yield rose 4 basis points
to 2.537%, while Hungary bucked the trend with its 10-year yield
falling by 3 basis points to 2.85%.
    Budapest's main equity index rose 0.6%, mainly driven
by an 1.2% rise in OTP Bank shares, which managed to
break through a technical line at 12,400 forints after several
failed attempts in the past month.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1441 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6400   25.6200    -0.08%    +0.26%
 crown      >                                       
 Hungary    <EURHUF=  320.7500  320.0500    -0.22%    +0.10%
 forint     >                                       
 Polish     <EURPLN=    4.2678    4.2630    -0.11%    +0.51%
 zloty      >                                       
 Romanian   <EURRON=    4.7236    4.7190    -0.10%    -1.47%
 leu        >                                       
 Croatian   <EURHRK=    7.4130    7.4155    +0.03%    -0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.0400  117.9500    -0.08%    +0.22%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1063.87  1059.220    +0.44%    +7.84%
                                       0            
 Budapest             41406.56  41159.57    +0.60%    +5.79%
 Warsaw                2298.00   2282.51    +0.68%    +0.94%
 Bucharest             8626.22   8583.26    +0.50%   +16.83%
 Ljubljana  <.SBITOP    872.28    879.66    -0.84%    +8.46%
            >                                       
 Zagreb                1904.73   1889.07    +0.83%    +8.92%
 Belgrade   <.BELEX1    731.70    731.88    -0.02%    -3.94%
            5>                                      
 Sofia                  578.64    581.37    -0.47%    -2.66%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.6060    0.0060   +227bps    +66bps
            R>                                      
   5-year   <CZ5YT=R    1.5360    0.0240   +212bps    +61bps
            R>                                      
   10-year  <CZ10YT=    1.6890    0.0360   +192bps    +26bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6570    0.0050   +232bps    +66bps
            R>                                      
   5-year   <PL5YT=R    2.0460    0.0900   +263bps    +67bps
            R>                                      
   10-year  <PL10YT=    2.5570    0.0800   +278bps    +31bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.15      2.07      1.97      2.17
            <PRIBOR=                                
            >                                       
 Hungary                  0.29      0.42      0.55      0.18
                                                    
 Poland                   1.75      1.74      1.73      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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