* Stocks down, drag on FX
* Zloty gains, bonds fall after strong retail data
* Forint set for 2nd straight weekly gain
(Updates with Polish data, bonds)
By Jason Hovet
PRAGUE, Sept 24 (Reuters) - The zloty trimmed losses and
Polish bonds fell on Friday after higher-than-expected retail
sales data added to arguments for a rate hike this year, while
weaker stock markets dragged on other emerging European
currencies.
Investors have turned sour on the zloty this week after the
finance ministry raised its forecast for this year's budget
deficit. The Polish currency led losses again on Friday, but the
Hungarian forint was set for its second straight weekly gain.
Stock markets across the region fell by up to half a
percent, tracking western peers lower after U.S. jobs data did
little to ease worries over a fragile recovery.
Central Europe's export-reliant economies are counting on
growing foreign demand to lift production, and the pace of that
recovery is likely to slow toward the end of the year.
In Poland, August retail sales rose 6.6 percent year-on-year
and unemployment eased, adding to expectations of higher
interest rates ahead. []
The zloty <EURPLN=> firmed from session lows but still bid
0.2 percent down on the day, clinging near a September low
around 3.983 per euro it hit in the previous session. Some
analysts said it could still test weakening past that point.
Bond yields rose by up to 3 basis points.
"Wage growth suggests retail sales should stay strong in
coming months, although private consumption should not
significantly rise in the third quarter in comparison with the
second due to a statistical base effect," said Rafal Benecki,
senior economist at ING Bank in Warsaw.
"This is an argument for those on the MPC supporting rate
hikes but it is not very convincing."
WHEN TO TIGHTEN
Minutes from the Polish central bank's August policy meeting
showed on Thursday policymakers voted on a 50 basis point rate
hike in a failed motion. The size of the possible hike was
larger than markets had originally thought. []
The Czech central bank kept interest rates flat on Thursday
as expected and stuck to its outlook for stable policy although
one board member advocated a rate hike, the first call for
tighter policy in more than two years. []
Hungary's central bank meets on Monday and analysts expect
rates to stay flat but will be watching for any signals the bank
could rise rates later this year. []
The forint <EURHUF=> was unchanged on Friday near the
psychologically important 280 per euro level and has gained 1
percent this week, buoyed by news of large automotive sector
investments and government pledges to cut the 2011 budget.
The Czech crown <EURCZK=> was also steady and Romanian leu
<EURRON=> added 0.3 percent.
"I'm not sure the forint can stick around south of 280
(versus the euro) next week," a Budapest dealer said.
"It will be interesting to see what they say about inflation
pressures, growth prospects and the investment climate. That and
the usual global risk factors will set the tempo next week."
German car maker Audi AG <NSUG.DE> announced on Thursday it
would spend 900 million euros by 2013 in a car factory in
western Hungary. The news followed an announcement this week by
General Motors (GM) [] that it would invest 500 million
euros to expand capacity in Hungary. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.599 24.598 0% +6.99%
Polish zloty <EURPLN=> 3.975 3.967 -0.2% +3.25%
Hungarian forint <EURHUF=> 279.55 279.55 0% -3.29%
Croatian kuna <EURHRK=> 7.284 7.287 +0.04% +0.35%
Romanian leu <EURRON=> 4.244 4.259 +0.35% -0.16%
Serbian dinar <EURRSD=> 105.55 105.307 -0.23% -9.16%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 105bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +102bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +114bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +401bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +366bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -8 basis points to +586bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +535bps over bmk*
10-yr T-bond HU10YT=RR -5 basis points to +460bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1121 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Susan Fenton)
