(Adds Czech bond moves)
By Karolina Slowikowska
WARSAW, Sept 15 (Reuters) - Central and Eastern European
currencies were stronger on Tuesday, led by zloty gains on an
improving economic outlook, while the Czech crown was unmoved by
weakening prospects for early elections.
Bonds were also up, helped by generally warmer sentiment,
although dealers and analysts said that could be short-lived.
After sharp falls early on Monday, the zloty recovered on
rising U.S. stocks and also after the European Commission said
Poland's economy would grow 1 percent this year, reversing its
previous forecast of a 1.4 percent contraction.
The zloty <EURPLN=> was 0.8 percent up against the euro.
"We believe that the zloty was supported by rising U.S.
stocks. The zloty's correction could, however, be a short break
before further weakening," BRE wrote.
Investors are particularly concerned by Poland's high
general government deficit and dividend payouts to foreign
investors, which helped to push its current account into an
unexpected deficit in July. Further dividend payments are
expected.
Czech August PPI unexpectedly edged up 0.2 percent from July
but the annual decline deepened, the biggest year-on-year fall
since records started in 1991. <ECONCZ>
The crown <EURCZK=> was little changed after the data and
unmoved by news that the main Czech leftist party, the Social
Democrats, will not back a move on Tuesday to dissolve
parliament and hold early elections in November. []
This decision significantly narrows the chances that the
vote can be successful and makes prospects for holding the
election before next June, the normal term, uncertain.
Postponing the election beyond November would keep in place
the current interim cabinet, which has struggled to win support
from political parties to push through savings needed to narrow
the widening fiscal deficit.
Hungary's forint <EURHUF=> reversed some of the gains posted
late in Monday's session and eased to levels around 273.50 to
the euro early on Tuesday, but a trader said it was unlikely to
weaken substantially, predicting a range of 272.5/275 per euro.
The Romanian leu <EURRON=> eased off a six-month low of
4.2860 against the euro seen in the previous session in thin
early trade.
STRONGER BONDS
Polish bonds were a touch stronger on Tuesday. But "it is
difficult to say now how things may develop. For now it's ...
helped by the better sentiment on the zloty," said Maciej
Slomka, chief fixed-income dealer at Pekao Bank.
Bond investors were also awaiting Polish inflation data for
August due at 1200 GMT. Analysts polled by Reuters forecast
price growth stabilised last month at 3.6 percent.
Czech bonds were also stronger, although dealers did not
directly connect the movement to political developments but
rather to inflation data and expectations that the central bank
could cut rates by another 25 basis points in November.
"Against this backdrop there is still substantial risk of
another 25 basis point rate cut on November meeting of central
bank, which may spark another wave of receiving interest on FRAs
and short-end swaps, pushing rates lower again and producing a
steeper curve," said Frantisek Kanka, dealer at Komercni Banka.
The PPI data shows "the first monthly increase after five
months of a downward path, but a more detailed look reveals a
steep drop of 5.9 percent month-on-month of agricultural
products, implying a drop in CPI down the road, thus supporting
our view."
Hungarian government bonds returned to the bullish trend of
the past few months as the forint recovered from Monday's falls,
helped by expectations for deep central bank (NBH) rate cuts in
the coming months from 8 percent.
"All (bond) yields have come down significantly from (last
Thursday's) auction levels<HUAUCTION02>," one Budapest-based
fixed income trader said.
"There are rate cut expectations in Hungary and in other
parts of the world. The yield falls will certainly continue for
some time, there is strong support from international markets...
We have seen jitters in both the EURPLN and euro/dollar, but
everything is pushed back quickly. The rallies of past months
will not be reversed in just two days if they are reversed."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.416 25.454 +0.15% +5.26%
Polish zloty <EURPLN=> 4.154 4.188 +0.82% -0.94%
Hungarian forint <EURHUF=> 272.24 273.27 +0.38% -3.19%
Croatian kuna <EURHRK=> 7.312 7.326 +0.19% +0.72%
Romanian leu <EURRON=> 4.264 4.268 +0.09% -5.85%
Serbian dinar <EURRSD=> 93.456 93.432 -0.03% -4.25%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +10 basis points to 201bps over bmk*
7-yr T-bond CZ7YT=RR +13 basis points to +196bps over bmk*
10-yr T-bond CZ10YT=RR -1 basis points to +180bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +392bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +356bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +298bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +624bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +561bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +483bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1029 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Karolina Slowikowska;
Editing by Ruth Pitchford)
