* Currencies gain as euro/dollar drops, risk appetite higher
* Crown underperforms on PLN/CZK carry, deficit overshoot
* Hungary finance minister: 2009 budget deficit below target
(Updates markets, adds bonds, writes through)
By Marton Dunai
BUDAPEST, Jan 4 (Reuters) - East European currencies kicked
off the year stronger on the back of a weaker dollar but a clear
direction will only form in the next few days as markets weigh
political and budget issues, dealers and analysts said on
Monday.
"We are stronger than we have been for quite a while," a
dealer in Budapest said. "We will need a couple of days to see
what the mood is like on emerging markets."
The Polish zloty <EURPLN=> and the Hungarian forint
<EURHUF=> each added 0.4 percent by 1036 GMT, followed by the
Romanian leu <EURRON=>, which was 0.2 percent stronger. The
Czech crown <EURCZK=> was flat.
Dealers expect the crown, the top performer of the region in
2009, to face continued pressure, with some investors starting
to favour long zloty versus crown trades due to lower Czech
interest rates.
Budget pressures add to that, as the Czech Republic posted a
deficit almost five times the original plan for 2009, the deputy
finance minister said on Monday. []
The budget news comes against a background of sounder
fundamentals than regional peers, Cheuvreux commented in a note.
"This basically sets off the start to the 2010 season of
fiscal issues, which all EU members will have to address,"
Cheuvreux said. "The Czech Republic, with a debt/GDP ratio of 30
percent at end-08... (is) much better placed than others."
Hungary, where public debt stands around 80 percent of GDP,
likely posted a 2009 cash flow based deficit below the targeted
3.8 percent of GDP, Finance Minister Peter Oszko told Reuters on
Monday. []
Investors are watching the fiscal performance of most east
European governments, most of which face elections in 2010 at a
time when budget pressures increase and the lax spending usual
in election years would boost already-high debt.
In Poland, the zloty benefits from the PLN/CZK carry trade
as well as investor bets that the economy could outperform
regional neighbours this year.
"The zloty's further strengthening should be supported in
coming weeks by local fundamentals, especially a likely strong
industrial output reading," analysts at BRE bank in Warsaw wrote
in a note.
Poland posted a region-best market sentiment index on
Monday, stable at 52.4 points in December after a similar
reading in November. []
The Czech PMI reading improved to 50.9 and Hungary's index
also ticked up, to 48.5.[]
In Romania, markets are gearing up for a central bank rate
decision on Tuesday. Analysts polled by Reuters last month said
the bank would keep rates at 8 percent, until parliament passes
an austere 2010 budget needed to unlock international aid.
"The central bank's decision is hard," a dealer said in
Bucharest. "Interbank interest rates are high, there will be
price hikes, so there is pressure on inflation. On the other
hand, lending must resume which means lower rates."
Dealers have said the leu could firm once the budget is
approved, a key condition for the International Monetary Fund to
free up funds from Romania's 20 billion euro aid package as
early as February. Parliament begins budget talks on Jan. 11.
Regional bond markets were mixed, with yields mostly stable
in illiquid trading and not following recent currency gains,
dealers said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 26.335 26.334 0% -0.06%
Polish zloty <EURPLN=> 4.089 4.104 +0.37% +0.37%
Hungarian forint <EURHUF=> 269.18 270.19 +0.38% +0.43%
Croatian kuna <EURHRK=> 7.295 7.31 +0.21% +0.19%
Romanian leu <EURRON=> 4.225 4.233 +0.19% +0.29%
Serbian dinar <EURRSD=> 96.56 95.88 -0.7% -0.7%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +42 basis points to +99bps over bmk*
7-yr T-bond CZ7YT=RR -12 basis points to +71bps over bmk*
10-yr T-bond CZ10YT=RR -3 basis points to +59bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +375bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +344bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +282bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +563bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +518bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +455bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1136 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
(Reporting by Reuters bureaux, Writing by Marton Dunai; Editing
by Andy Bruce)
