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30 August - 5 September 2010
| The MPC meeting in August, after 2 months holiday break, has not brought significant change in monetary policy prospects. At the same time the new local macro figures has not changed much picture of economic situation. Global markets were nervous about the extent of the economic slowdown (among others after record weak data from the US housing market), but the Polish market proved to be quite resistant to that. The zloty lost only slightly and temporarily while rise in yields of local bonds was limited. |
This week there will be a few important domestic factors: GDP for Q2 as well as PMI and FinMin’s inflation estimate for August. However, the zloty and local bonds should remain mainly under impact of changes in sentiment on the global markets. This in turn will depend on plethora of crucial data due for release in the euro zone and the US this week.
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Download: Weekly economic update 30 August - 5 September 2010
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23-29 August 2010
Data from the labour market and about production in industry and construction proved to be worse than forecast, which weakened market expectations for rate hikes. The publications did not harm the zloty, but helped in strengthening the bond market. Only a series of disappointing US data on Thursday and a comment of ECB executive board member on Friday caused an adjustment on the currency market and EURPLN increased to ca. 3.98. Despite higher risk aversion, foreign demand for Polish bonds persisted amid the very low yields of Bunds and Treasuries. This week investors’ attention in the domestic market will be focused on the MPC meeting.
Therefore, the economic data to be released shortly before the MPC decision (including retail sales and unemployment rate) will not have significant impact on market rates. |
Decision on interest rates will be also taken by the Hungarian central bank. Numerous indicators of economic climate in the US and euro zone, as well as American data from the housing market and revised GDP for Q2, will determine a direction of changes in market sentiment. In case of more disappointing readings, risk aversion and fears about global economic growth may strengthen.
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Download: Weekly economic update 23-29 August 2010
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9-15 August 2010
| Last week’s information brought ambiguous signals as regards the scale of recovery in the Polish economy as on the one hand we saw lower than expected PMI manufacturing index despite clear increase of this indicator in the euro zone, while on the other hand there was information showing that improvement in the labour market continues with further fall in the unemployment rate. Still, details of the government’s Multi-Year Financial Plan approved by the Cabinet on Tuesday, are not known. The planned increase in VAT rates will lead to a moderate increase in inflation (it is hard to asses what scale of the increase will be passed to consumers, but even if all of it affects prices, the CPI may be higher by ca. 0.5 pct. point.). The influence on GDP growth should be rather limited as well. This does not change the fact that increasing taxes is not a proper way to deal with public finance sector problems and to reduce fiscal deficit permanently, some steps towards reforming spending side of the budget would be welcome. |
The Polish foreign exchange market saw some stabilisation at the level close to 4.0 for EURPLN. We expect that the Polish currency may depreciate slightly this week, which may be influenced by high current account deficit in June, as well as low CPI inflation in July. The latter factor, together with recent dovish comments by the NBP President may support the Polish debt market, limiting expectations for monetary policy tightening. The key events abroad this week include Fed meeting and data on GDP growth in the euro zone. Also, a few important indictors in the US will be released (e.g. CPI, retail sales).
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Download: Weekly economic update 9-15 August 2010
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2 - 8 August 2010
| Financial markets positively reacted to stress test results for European banks, which together with publication of good economic data for the euro zone and the US, led to higher risk appetite last week. Improvement in market sentiment was visible in European debt markets, which was reflected in positive results of government debt auctions in the countries of higher fiscal risk (Portugal, Italy, Hungary). During the week the euro strengthened against the dollar. The Polish currency also appreciated and the trend was stopped at the psychological barrier of 4.0 against the euro. This was the last support level we mentioned in the previous weekly report. Polish data on consumer and business sentiment confirmed positive tendencies in the Polish economy. |
The presented assumption of government’s financial plan for the next few years were not positive for the markets. Higher than previously announced budget deficit (PLN45bn), later than previously assumed reduction of fiscal deficit below 3% of GDP (2013), as well as hawkish comments by MPC members in reaction to planned VAT hikes, led to a correction of the Polish bond market. This week the focus of investors will be still on government’s fiscal plan, though on Monday PMI for July will be released and the Ministry of Finance will publish CPI inflation forecast. As regards sentiment abroad, this will be driven by data on economic activity and the ECB meeting.
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Download: Weekly economic update 2 - 8 August 2010
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26 July - 1 August 2010
| The past week has brought the increase in the risk appetite on the global markets, driven by better-than-expected macro data (mostly from the euro zone) and largely positive earnings reports for Q2. Improvement in sentiment on the markets was limited by negative tone of comments from Fed’s Bernanke before Congress and uncertainty before publication of the stress-tests for the European banks, which was scheduled for Friday after close of the markets. Better sentiment towards the region and related to that gains of the zloty and Polish bonds was constrained by news about halted talks between Hungary and the IMF/EU. Clearly better than the forecast domestic economic activity indicators (industrial and construction output as well as retail sales) increased optimism regarding the pace of economic growth in Poland. The distribution of likelihood for our forecast on GDP growth in Q2, which assumes stabilisation at 3.0%YoY posted in Q1, becomes asymmetric to the upside. However, we are waiting with a potential revision of our forecast for the data on the foreign trade that are due to be published in August. We also stick to our view regarding further actions of the MPC. |
The central bankers’ positive assessment of current data from the domestic economy accompanied by numerous strong data from the euro zone (last week we saw higher than expected euro zone’s PMIs and much stronger than predicted Ifo index that showed the strongest monthly rise since the Germany’s unification to the highest level since July 2007) may be neutralized by some negative data from the US and consequently uncertainty regarding the durability of global economic recovery. This week, the only local macro figures will be the consumer sentiment indicators. That is why events abroad will be even more significant than usual. As to events in the global markets, at least in the early part of the week the focus will be on the stress-test results and then on earning reports and macro figures.
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Download: Weekly economic update 26 July - 1 August 2010
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5-11 July 2010
Foreign markets remain under pressure of worries about economic slowdown, fuelled by a worse-than-expected data
releases in major economies (last week among others PMI and ISM, US data from the labour market and real estate
market), and fluctuations in global risk aversion are still a key factor in the behaviour of financial markets. Against this
background, the results of the Polish economy look very positive. A series of optimistic local data published in recent
weeks was supplemented by PMI index, which rose in June to the highest level for almost three years, suggesting
continued rapid growth in industrial output driven by foreign demand (still very strong inflow of export orders). Inflation
is still on a downward trend (Ministry of Finance, like us, predicts a decline in June to 2.1%, and below 2% in summer),
but with the economic recovery and the turmoil in financial markets (weaker zloty) there is a number of risks for
inflation in the medium term. |
They were spotted by the MPC and the tone of the communiqué in June was more hawkish than before. This confirms expectations that the first interest rate hike by 25 basis points will take place in the final quarter of 2010.
After the first reaction to the outcome of the presidential election (which we think should be short-lived, regardless of
the result), this week once again market attention will focus on events abroad. Not too numerous data publications in
the US and the euro area will be further guidance on economic growth in the world and main determinants of risk
appetite. As usually, the tone of the press conference after the ECB meeting and comments of J.C. Trichet will be
important for markets.
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Download: Weekly economic update 5-11 July 2010
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28 June - 4 July 2010
| Although the last week started in positive moods after a weekend decision of Chinese central bank to abandon the dollar peg of the yuan, the optimism quickly ran out of steam and was replaced by a returning risk aversion. Investors realized that the scale of the strengthening of Chinese currency will be minor, and will not be able to compensate for the risks to global growth arising, inter alia, from the European debt crisis and the need of fiscal policy tightening in many countries simultaneously. Assessment of the prospects for the US economy deteriorated further after data releases in the US and publication of the Fed statement. This week, the mood in global markets will remain central to the evolution of the Polish financial market. |
At the start of the week the determinant of trend may the conclusions of the weekend G20 meeting in Canada. Later on, a lot of data releases in the US and in the euro area may affect the market assessment of the prospects of economic recovery. The key domestic event will be the first meeting of the Monetary Policy Council chaired by the NBP President Marek Belka and the publication of new NBP’s projections of inflation and GDP. The finale of the campaign before the second round of presidential elections should not have a significant impact on the market.
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Download: Weekly economic update 28 June - 4 July 2010
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21-27 June 2010
| Last week the Polish financial market was still driven by global sentiment. Overall during the week, in line with our expectations, there was higher risk appetite, which resulted in some strengthening of the zloty, although local bonds moderately weakened. However, during the week volatility was quite significant. First, information about difficult fiscal situation in Spain and rumours that the country may apply for international financial aid similar to the Greek one, brought nervousness to the market. Then, the successful auction of Spanish long-term bonds lowered investors’ worries regarding sovereign risk. What is interesting, weaker than expected global macroeconomic data (e.g. fall in ZEW and Philly Fed indices, weak figure on US house starts) did not change much market perception regarding the scale of global economic recovery. A lot of macroeconomic data published in Poland were positive, but not to an extent to change our economic outlook or view on monetary policy. As we expected, data had rather limited impact on the market. |
This week the key factors for the markets include flash PMI indices for the euro zone and the result of Fed meeting. The market will also await G20 meeting on June 26-27. We assume that appetite for risky assets will be higher, which may translate into strengthening of the zloty and domestic bonds. On the Polish market the focus will be on retail sales figure for May. In the region, central banks meetings will be important – in Hungary on Monday and in the Czech Republic on Wednesday.
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Download: Weekly economic update 21-27 June 2010
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14-20 June 2010
| The following days will bring a number of important macroeconomic publications for May. We expect a moderate fall in CPI inflation and rise in PPI index, confirmation of improvement in the labour market and some moderate slowdown in industrial production (growth of close to 9%YoY driven mainly by foreign demand). The data will be first signs on possible impact of flood on the Polish economy. Also, a number of data releases will be a kind of test for the new NBP President as regards his self-restraint on commenting current economic situation. |
A lot of important information will also be released abroad giving hints on the pace of economic recovery in global economy. Publications in core markets will be the key drivers for investors’ risk appetite and market moods.
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Download: Weekly economic update 14-20 June 2010
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7-13 June 2010
| Recent economic data from the Polish economy suggested that, after a slight slowdown in GDP growth at the beginning of the year, a further deceleration is possible in the second quarter (to below 3%YoY), due to, among others, temporary factors adversely affecting the activity of consumers and enterprises (early Easter, national mourning, effects of flooding). The data indicate a continued recovery in the industrial sector, driven by strong foreign demand, but activity in the domestic market (construction, retail trade) suffered from negative effects of recent unexpected events and weather anomalies. In the subsequent quarters a revival in economic activity should take place, so that the GDP growth in 2010 should be slightly above 3%YoY. Financial markets are still characterised by uncertainty and rapid swings in moods, and investors worried about the consequences of fiscal tightening on economic growth and the possibility of spreading problems with debt to other countries (including Hungary, which had declared that the previous government had manipulated the data). The zloty and bonds weakened during the week and the euro has fallen to a new four-year low against the dollar on the wave of returning risk aversion. |
This week, there are no major data releases in Poland. If the PO manages to convince the other parties (or at least PSL) that the vote on the nomination of Marek Belka for the NBP Governor could take place before the presidential election, the new head of the central bank may be appointed on Friday. If not, the reaction of financial markets should not be too negative in our view. Abroad, top events will include meetings of central banks in the euro zone and UK. The market does not expect any change in interest rates and investors’ attention, as usual, will be focused on the ECB press conference, with the special interest in sovereign debt issues and the ECB’s bond purchases, as well as the latest growth and inflation forecasts. Few macroeconomic data releases from the US and in some euro zone countries will provide guidance on the pace of economic recovery in recent months.
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Download: Weekly economic update 7-13 June 2010
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31 May - 6 June 2010
| Following an increase in risk aversion at the start of the week due to concerns about the conflict on the Korean Peninsula and (later denied) speculation that China will reduce purchases of euro area bonds, the second part of the week saw a rebound in risk appetite, strengthening of the zloty and bonds. MPC has kept interest rates unchanged and the decision of the Council and its statement had no impact on the market, similarly as significantly weaker than forecast retail sales data for April. The Acting President Bronisław Komorowski, said that he would propose Marek Belka for the job od the NBP Governor and the vote is to be held at the next Sejm meeting. Although the majority of parliamentary caucuses argued that the choice of the NBP head should not take place before presidential election, Marek Belka’s nomination should be supported by majority of votes in Sejm (PO and PSL or the Left). |
This week's key domestic events include publication of GDP data for Q1, PMI index for May and the inflation forecasts of the Ministry of Finance. Abroad, the key factors include data on US non-farm payrolls, activity indices in the euro zone and the US and the G20 meeting scheduled for the end of the week, which is to address the issue of crisis in Europe and the regulation of financial markets.
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Download: Weekly economic update 31 May - 6 June 2010
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24-30 May 2010
| The last week was marked by rise in risk aversion in the global markets, which translated into clear weakening of the zloty and local bonds. Lower risk appetite was related to increased uncertainty in the market after Germany introduced a ban on naked short sale of the euro zone’s government bonds, CDS contracts and key financials stocks. Market sentiment was also negatively affected by disappointing data from the US economy, although they lifted the EURUSD at the same time. Towards the end of the week the zloty rebounded against majors, especially that on Friday global stock markets recovered. The zloty was also helped by rise in EURUSD and by rumors (not officially confirmed) that the state-owned bank BGK sold on the market foreign currencies from EU funds. |
On Friday the Sejm amended the NBP Act, clarifying rules for taking over duties of the NBP governor in case of his death. At the same time, it seems that it will not be possible to win majority for appointment of the new NBP governor before presidential elections.
This week the key driver for the Polish market will still be changes in moods on the global market. The MPC meeting (no changes in monetary policy parameters are expected) and next local data will be in the background.
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Download: Weekly economic update 24-30 May 2010
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17-23 May 2010
| The stabilization package of the European Union with the support of the IMF with a value of €720bn positively surprised investors, similarly as the ECB decision to purchase government bonds and private sector debt of the euro area countries. This stabilized situation in financial markets and gave time for fiscal reforms in the European Union. Yields of domestic bonds fell again, and the zloty clearly strengthened against the euro, which has only temporarily rebounded versus the dollar. Even if the economic data releases planned for this week abroad will show positive surprises, the optimism of investors will be constrained by prospect of tightening fiscal policy in Europe, which may have a negative impact on the scale of economic recovery. |
Domestic data should show a clear increase in foreign trade volume in March, a small slowdown in pay growth, maintenance of two-digit growth in industrial production, and a bottoming-out in the building sector in April. Inflation data should confirm the lack of upward pressure on prices.
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Download: Weekly economic update 17-23 May 2010
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10-16 May 2010
| The last week was marked by significant rise in risk aversion amid growing concerns about the Greek debt problems and its spill-over to other markets. The single currency clearly weakened against the dollar while the global markets saw sharp weakening of credit markets, stocks and emerging market currencies. There was strong increase in CDS rates, mostly for peripheral countries of the euro zone (for Greece to ca. 1000bps). On Wednesday, Moody’s added fuel to the flames, putting Portugal’s rating on the watch list and warning against a possibility of spill-over effects of the Greek debt crisis. However, the culmination of the rise in risk aversion took place on Thursday, as investors were disappointed by the outcome of the ECB meeting (no actions and only comments that default of Greece is not an option and situation of Portugal and Greece is much better) and scared by protests in Athens. Major stock indices in the US recorded the strongest intra-day fall since 1987, although this could be partly related to erroneous transactions. On Friday, moods in the markets improved thanks to approval of the rescue plan for Greece and the German parliament and due to better than expected labour market data from the US. |
This week the markets will remain focused on developments regarding the sovereign debt crisis (important event will be the Eurogroup on Monday). We assume that after approval of the rescue plan for Greece by the German parliament on Monday and by the IMF over the weekend, one should see some improvement in market sentiment this week. Macro figures may become somewhat more important in such circumstances. Recent news from the global economy were mostly positive and this would be supportive for rebuilding of risk appetite. However, it will be important what next data will show with key focus of attention this week on the US retail sales for April. Domestic macro data will recede in the background, especially that we will see only CPI inflation as regards crucial figures. More important will be outcome of the 5Y bonds auction. We expect the zloty and local bonds to strengthen.
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Download: Weekly economic update 10-16 May 2010
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3-9 May 2010
| The last week has passed under the sign of concerns about the risk of insolvency of Greece and other eurozone countries struggling with fiscal problems. Sharp reduction of Greece’s ratings by S&P to “junk” status and downgrades of Portugal and Spain were accompanied by sale-off in the markets, but by the end of the week, the moods began stabilizing in hope that the negotiations between the IMF, the European Union and Greece will end with a deal during the weekend and Greece will receive substantial financial assistance (ca. €100-120bn over three years according to some sources) in exchange for a commitment to strong economic reforms. Details of the aid plan and exact conditions will be crucial for market sentiment this week. Please note that even if the deal is made, the uncertainty may persist, because the austerity measures may meet with strong resistance from the Greeks (a wave of strikes and protests is already planned in early May). |
However, it seems that the strong commitment of the EU and the IMF for assistance, and the Greek government to carry out the required cuts should improve risk appetite for some time, which should encourage the strengthening of the zloty and bonds. The list of domestic publications this week is very short. PMI index will probably confirm further increase in industrial activity, but weaker than in the euro area. MinFin inflation forecast should not be a surprise, showing a continuation of downward trend. There will be quite a number of important releases in the US and the euro zone, as well as the ECB meeting (the press conference probably will be dominated by questions about Greece).
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Download: Weekly economic update 3-9 May 2010
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26 April - 2 May 2010
| Data from the domestic economy released last week (retail sales, production, wages), were a positive surprise, which bodes well for GDP growth in the first quarter. Also, CSO business climate indices for April continued improving, and GDP report on business climate also presented an optimistic assessment of situation. Although we think that economic recovery will be continued, one should not be overly optimistic at this time, particularly taking into account large uncertainty about future economic situation abroad or consequences of possible further appreciation of the zloty on the competitiveness of Polish economy. The issue of exchange rate and its impact on monetary policy may once again an important theme at the MPC meeting this week. Zloty exchange rate and bond yields fluctuated in the past week in a narrow range of fluctuation. |
Zloty may appreciate slightly this week in case of more positive surprises in the financial results of companies abroad, good macro data, and decreasing concerns about the situation in Greece after the Greek government has requested aid from the EU and the IMF. This week the acting President Bronisław Komorowski shall take decision on the timing of appointment of the new NBP Governor. Abroad, the key events will include the flash US GDP release for Q1 and the Fed decision. Markets will closely watching whether the statement about keeping rates low “for an extended period” is preserved or replaced. Also, comments after the G20 meeting may be important.
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Download: Weekly economic update 26 April - 2 May 2010
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19-25 April 2010
| Saturday’s tragedy had no impact on the Polish financial market. The Sejm’s Speaker Bronisław Komorowski, as acting President of the country, announced that at the beginning of this week, after analysis of the legal expertises, he will decide whether he would be in a hurry to nominate the NBP President. After recognition by the MPC that the First Deputy of the NBP President, Piotr Wiesiołek, takes over the right to chair the MPC and has the right to vote, a delay in nomination of the new NBP President should not bother the markets. On April 21, Komorowski is due announce official date of presidential elections (most likely June 20). Largely positive macro data and earnings reports lifted global stock markets, but at the same time Treasuries and Bunds gained as capital in the debt markets fled towards more credible issuers amid renewed strengthening of concerns about Greek debt problems. |
Better moods in the global markets did not translate into stronger zloty, as appreciation of the local currency is constrained by a possibility of NBP interventions in the market. At the same time, interventions weakened expectations for a hike in NBP rate, which led to strengthening in the interest rate market. This week we will get many important data locally, but the key driver for the markets will be events abroad: both macro figures, earnings reports and developments re Greece.
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Download: Weekly economic update 19-25 April 2010
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12-18 April 2010
| At the end of a fairly quiet week after Easter, the NBP intervened in the currency market, and thus warnings that appeared recently in central bankers’ comments have materialised. This was the first FX intervention since the introduction of direct inflation targeting strategy in 1998. The MPC gave the permission for this operation, and the Ministry of Finance declared the government's full support for it, which shows that, despite differences of views on some issues (FCL, NBP profit), an effective interaction of these bodies in key areas is possible. In our view, Friday intervention is a signal to the market that exchange rate policy in Poland is changing to a more active type, which should weaken the pressure for appreciation of the zloty. |
Major domestic publications this week include CPI and the balance of payments. Investors will, however, focus most of all on further guidance from the NBP on the exchange rate (eg. such as statements by MPC members on Friday that the optimal rate for the economy would be about 4.0 per euro). It is possible that the market will try to test the patience of the central bank, but we think the zloty is likely to continue weakening in the nearest week.
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Download: Weekly economic update 12-18 April 2010
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5 - 11 April 2010
Last week the domestic financial market was still in very positive moods, which was reflected in further strengthening of the Polish zloty, significant fall in short-term bonds and sharp decrease in FRA rates accompanied by lower WIBORs. Decrease in market rates could have been driven by lower-than-expected PMI index for March. The meeting of the Monetary Policy Council brought no surprises in terms of interest rates, which were kept on hold together with the informal neutral bias in monetary policy. The statement of the Council did not change prospects for official rates, though its overtone might have been interpreted as slightly more dovish. After the MPC meeting, in the foreground we saw the conflict between the Board of the central bank and the MPC concerning the way of calculating provisions for foreign exchange risk in central bank’s profit. The euro is still under influence of possible problems connected with financing needs of Greece, though the end of the quarter brought some closing of positions against the euro.
Additionally, the single European currency was supported by interventions by the Swiss National Bank, which weakened franc against the euro. |
Quite positive data from the US labour market at the end of the week, as well ISM activity in services will be analysed at the beginning of the week by US investors, as they were absent on Friday’s session. Despite some data releases, Easter Monday should be rather calm with most of European markets closed. With light economic calendar in Poland, the most important will be the auction of two-year bonds and we do not expect the Ministry of Finance to have problems with investors’ demand. Later during the week the market will focus on Fed minutes and speech by Ben Bernanke in the US, as well as on ECB meeting and some data releases in Europe.
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Download: Weekly economic update 5-11 April 2010
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29 March - 4 April 2010
| Last week was marked by expectations for a resolution of Greek debt problems. Associated with that market uncertainty and opinion of some market participants that a Franco-German proposal for a mix of IMF and bilateral loans for Greece is a proof of weakness of the euro zone, had a strong negative impact on the euro. Nevertheless, the zloty remained strong, and domestic bonds strengthened again. This was helped by a rise in global risk appetite, reflected in a distinct increase in equity prices in Poland and abroad. European Commission’s unflattering opinion about the Polish convergence program remained overshadowed by concerns about the debt of the euro area. The EC said that Poland should consolidate public finances faster, as the assumption that the bulk of deficit reduction will take place in 2012 is risky (which we also pointed out earlier). Nevertheless, markets are still positive about the Polish economy, which was reflected in good results of Eurobond issue (a record share of central banks among purchasers). |
Strengthening of domestic interest rate market was also associated with worse than expected data on retail sales, which reduced estimates of GDP growth in the first quarter of this year. Still, there were also good information from our economy. This week (before Easter) activity in the markets will be limited. We anticipate a stabilization of the zloty and slight correction of domestic bonds amid still uncertain situation in global markets. In our view, the MPC will not make any changes in monetary policy at its meeting this week.
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Download: Weekly economic update 29 March - 4 April 2010
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22-28 March 2010
| After a clear strengthening of the zloty and bonds, the end of the last week saw a moderate correction on the domestic market, related to, inter alia, concerns about the rescue package for Greece. In the nearest days the zloty will remain more vulnerable to swings of moods abroad than to domestic data, especially that the number of publications will be limited. Set of macroeconomic data, which were published last week, brought a rather optimistic information about the inflation outlook and ambiguous instructions on the economic activity in the first quarter. The positive surprise in industrial production was overshadowed by much deeper than forecast drop in construction output. In turn, higher than expected wage growth in the corporate sector was accompanied by a stronger decline in employment. In total, the data indicate a risk that GDP growth in the first quarter may be below 3%. |
From this perspective, the CSO press conference next Wednesday will be important, at which the data on retail sales for February will be released. Other domestic data published this week should not have a significant impact on the market. Abroad, market attention will focus on data from the real estate market in the US and business climate indices in Europe, as well as on news about the situation in Greece.
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Download: Weekly economic update 22-28 March 2010
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15-21 March 2010
After a fairly short-lived and not very strong correction (EURPLN up to 3.912), which scope was limited by another wave of risk appetite in global markets after the Friday publication of better than expected data on production in the euro area and retail sales in the US, the zloty has regained some ground, but in our opinion it is still overbought, which poses a risk of weakening. The direction of move will be determined by changes in global sentiment, which will be affected this week by lots of events abroad, including meeting of the Fed and the numerous publications in the US.
Set of data from the Polish economy, which will be released this week, will help clarify whether and to what extent a surprise, which appeared in publications for January were momentary disturbances. |
We expect to see the results, which should not substantially change the picture of the economic situation. It is possible that there will be more comments of the MPC members seeking to steer market expectations about the prospects for monetary policy and exchange rate.
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Download: Weekly economic update 15-21 March 2010
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1-7 March 2010
| Last week, in line with our expectations, the situation in the financial markets has been fairly stable. The result of the MPC meeting and the conclusions of the new NBP's projection for inflation and GDP did not change expectations about the prospects of domestic monetary policy. Before the meeting of the Council we saw the domestic retail sales data for January, which were disappointing, showing clearly stronger than expected slowdown in nominal growth to 2.5%YoY from 7.2% in December. When evaluating these data one should note that as with many other indicators for January, they were under influence of temporary and statistical factors. Recent indicators of consumer sentiment for February by the CSO and Ipsos showed continued improvement. |
The assessment of actual trends in consumer demand have to wait for the data for subsequent months. More light on the process of revival of the Polish economy will throw this week’s data on GDP for the fourth quarter of 2009 and the PMI index for February. Crucial for the Polish financial market, however, will be changes of sentiment in global markets, for which important factors this week will be indicators of activity in the euro zone and the US, the ECB meeting, and the data from the labour market in the US. Decision on rates by Australian central bank due on Tuesday may also be important.
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Download: Weekly economic update 1-7 March 2010
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22-28 February 2010
The zloty fluctuated around the level of 4.0 per euro over the past week, in line with our suggestion from the previous report. At the same time, sentiment in global markets and the EURUSD exchange rate were subjects to significant fluctuations. Publications of the domestic economic data for January have provided a lot of surprises, but their impact on the market was negligible, since for statistical reasons it was difficult to assess on the basis of these data the actual trends in the economy.
The last week of March will pass on the Polish financial market under the sign of waiting for the MPC meeting and the publication of a new Inflation Report, containing updated projection for inflation and GDP. NBP's projection is likely to show more optimistic economic growth than the previous one. |
The question is whether this also implies higher (and how much?) medium-term inflation path. Data on retail sales and unemployment, published a little earlier, should not have a key impact on the behavior of investors. More important will be events abroad, including Bernanke's semiannual address to Congress, and publication of many key economic data as next financial reports of companies for Q4.
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Download: Weekly economic update 22-28 February 2010
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15-21 February 2010
| The last week was still under influence of fiscal problems in Greece and other peripheral countries of the euro zone, which was reflected in falling EURUSD rate. However, in line with our expectations the Polish currency strengthened supported by higher risk appetite globally and rising equity indices, which was driven by market hopes that Greek problems will be solved somehow by other euro zone countries. Additionally, positive data on US retail sales for January and weekly labour market data were more important than weak statistics on German GDP and the second hike in reserve requirements by the Chinese central bank in a month time. We expect that this week will bring stabilisation of market situation and the EURPLN rate should trade horizontally around 4.0. |
We assume that the series of economic data in the euro zone and the US will not bring big surprises and fears regarding fiscal position of euro zone countries will not intensify. Domestic macroeconomic indicators will look rather pessimistic at the first glance (labour market statistics and production data will deteriorate under influence of temporary and/or statistical effect), but this would not change prospects for the Polish economy and therefore should have limited negative impact on the foreign exchange market.
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Download: Weekly economic update 15-21 February 2010
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1-7 February 2010
| Preliminary GDP data for 2009 as a whole confirmed that the Polish economy is on the recovery path and economic growth in Q4 reached ca. 3%YoY. However, the GDP figures as well as earlier released better than expected retail sales data for December does not eliminate the risk for the medium-term economic growth prospects for Poland related to a possibility of another wave of economic downturn in the global economy. Thus, we think that the fresh data are neutral for monetary policy prospects, especially that the MPC meeting in January with partly changed makeup did not bring any surprises in assessment of outlook for the economy and inflation. In the government’s Plan of Fiscal Development and Consolidation there were many ideas pointing to the right direction, though most of them are general statements and announcements (most of them were earlier discussed), and there is lack of clear-cut solutions. |
Actually, the proposed rule according to which public spending (though only the non-fixed ones) would rise not faster than 1% above inflation may limit the fiscal deficit almost only in the scenario of GDP growth acceleration. Domestic data were supportive for the zloty and it was resistant to unfavourable conditions in the global markets (falling EURUSD and major stock indices). Strong macro figures released in the US on Friday suggest the zloty will gain this week. The key driver for the local market this week will be events abroad. Locally we will get PMI, FinMin’s inflation estimate and possibly the update of the convergence program.
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Download: Weekly economic update 1-7 February 2010
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25-31 January 2010
In line with our last week’s suggestion the zloty did not breach 4.0 level against euro and after bouncing off this level was weakening, under influence of rising risk aversion and strengthening of the dollar in global markets. The correction may be continued this week, however the EURPLN should not exceed 4.15.
The key domestic figure will be GDP data for 2009. The most recent monthly indicators supported our forecast assuming over 3% GDP growth in Q4, which yields 1.7% increase in the entire year. Important factor for assessment of outlook for the next quarters will be growth in private consumption and investment in Q4. |
The first MPC meeting with presence of some new members and presentation of government’s plan of development and fiscal consolidation should have no major impact on the market. Much more important will be FOMC meeting (we expect a cautious tone of the bank’s statement), US macroeconomic data and financial reports of companies, which will determine market expectations concerning pace of economic recovery in world economy.
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Download: Weekly economic update 25-31 January 2010
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18-24 January 2010
| Recent days saw a continuation of gradual strengthening of the zloty towards the level 4.0, however in our opinion this barrier should not yet be breached in the short term. In the debt market, there was a decline in market rates supported by the appreciation of the zloty and the results of auctions of 2Y bonds and eurobonds. Inflation increased less than expected in December, but this has not supported the interest rate market. Balance of payments data showed good data on exports and services that support our estimates of GDP growth in Q4. Last week the Senate chose three MPC members: Andrzej Rzońca, Jan Winiecki and Jerzy Hausner. The latter member may be key for the result of the Council voting, in addition to ElŜbieta Chojna-Duch elected last week, due to his moderate views. The President is expected to announce his nominations to the Council in the second half of January. This week, there are ample domestic data in the agenda. We expect a greater acceleration in wage growth than the market and a fall in employment in line with the consensus. We also expect a fairly high two-digit growth in industrial output and slowdown in construction production in December. |
These data and business climate indicators should confirm a continuation of revival in the domestic economy and will support the zloty, and may slightly inhibit the downward trend in market rates. Domestic investors are still waiting for the plan of public finance consolidation. Abroad, the start of the week should be quiet amid US market holiday. The key to global sentiment will be publications of Q4 earnings reports abroad. Moreover, important data will include ZEW and PMIs in the euro zone, and housing market data and the Philly Fed index in the US.
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Download: Weekly economic update 18-24 January 2010
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11-17 January 2010
| The turn of the year was favourable for the zloty and the domestic debt market. In the holiday season the zloty gradually appreciated against the major currencies, while yields of Polish bonds were stable amid limited activity. The start of the year brought further zloty appreciation amid improvement of global moods (relatively stable EURUSD, higher yields in the core debt markets and higher equity indices). There was also a clear strengthening of the local debt market in reaction to positive news regarding the fiscal policy, allowing to assume this year’s budget deficit and borrowing needs will be lower than was earlier feared, though they will be still very high acting toward significant increase of public debt. Publication of fiscal consolidation plan is delayed and it should be finally released within 1-2 weeks. The domestic macroeconomic data released at the turn of the year has not significantly changed the economic picture. On one hand, we had better than expected retail sales data for November, and on the other hand slightly disappointing PMI for December. |
Overall, they confirmed the expectations for continuation of economic recovery with annual GDP growth rate in Q4 2009 around 3%. Last week brought passing two first candidates to the MPC by Sejm – Andrzej Bratkowski and ElŜbieta Chojna-Duch. The remaining candidates of the ruling coalition from the parliament are due to be accepted in the next few weeks and the President is going to announce nominees in the second half of January. This week we will get important domestic data (CPI and balance of payments) and a large portion of important figures from abroad (mainly at the end of the week). ECB meeting will also be important.
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Download: Weekly economic update 11-17 January 2010
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14-20 December 2009
| Last week there was a significant correction of the zloty amid sharp strengthening of the dollar in world markets after the good data from the US. Together with the weakening of the zloty, a slight increase in bond yields took place backed by the negative information about the ratings of European countries. Good data from abroad should support the risk appetite also this week, although they will also favour strengthening of the dollar, which may reduce the scope for zloty appreciation. This week a vast part of the domestic economic data planned for this month will be released. |
We expect higher than consensus growth in industrial production and in line with the consensus inflation, which in total should be slightly negative for the domestic debt market. This week also the plan of public finance consolidation is supposed to be presented. Abroad, apart of series of relevant data releases, an important factor for the markets will be the Fed communication that will help to assess prospects of US interest rates.
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Download: Weekly economic update 14-20 December 2009
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7-13 December 2009
| Last week in the financial markets was marked by strengthening interest in risky assets. This translated into significant appreciation of the zloty. The EURPLN rate decisively broke the important technical level of 4.06 (the weekly minimum seen reached on Friday was 4.04) and moved towards the psychological barrier of 4.00. The key factor for improvement in sentiment on the global markets was publication of the much better than expected US non-farm payrolls report on Friday. It showed drop in employment outside farming by a mere 11k against forecasted fall of 125k while the unemployment rate fell to 10% against predicted stabilization at 10.2%. Additional driver of the zloty appreciation were domestic data on GDP for Q3 and PMI manufacturing for November, which proves better than market consensus and even our relatively optimistic forecasts. The zloty appreciation translated into strengthening of the domestic interest rate market, although fall in money market rates and bond yields was constrained by strong GDP and PMI figures, which strengthened market expectations of quite swift rate hikes in Poland. However, comments from three official candidates for the new MPC from Sejm – Andrzej Bratkowski, ElŜbieta Chojna-Duch and Anna Zielińska-Głębocka – do not signal any revolutionary steps in the monetary policy. |
Even comments from Andrzej Bratkowski, who seemed to be potentially the clear hawk among the new MPC members were not much hawkish. We expect that positive moods after Friday’s data from the US labour market will be continued this week. The target for the EURPLN rate is 4.00. The key day of this week will be Friday again, when we will get the US data on retail sales for November and preliminary Michigan index for December. The numbers will be important for assessment of strength of consumption demand and thus the markets’ belief in durability of the economic recovery in the US.
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Download: Weekly economic update 7-13 December 2009
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30 November - 6 December 2009
| The beginning of last week was quiet in the domestic financial market. Slightly declining market interest rates were accompanied by zloty oscillating at fairly strong levels. In the world markets there have been capital flows into risky assets amid high liquidity in the markets and expectations that US rates will remain low for a long time, which, together with fairly good data published abroad contributed to a sizeable weakening of the dollar. This trend has reversed immediately after the news about debt crisis in Dubai, which caused a marked decline in global risk appetite. The expected slowdown in retail sales did not have a major impact on the market, similarly to the result of the MPC meeting. Investors are paying more and more attention to information about set of candidates to the new Council, especially as deadlines for their nomination are approaching. |
This week, data on GDP for the third quarter can support the zloty. The currency may be negatively affected by the global sentiment, at least until clarification of the situation in Dubai. PMI index will probably show further moderation in the decline in industrial activity. Important factors for the interest rate market may be FinMin’s inflation forecasts and bond auction, although the behaviour of the zloty will remain the key driver. If the data from the US once again prove to be good, they may support risk appetite.
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Download: Weekly economic update 30 November - 6 December 2009
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23-29 November 2009
| The past week has brought a reversal from two weeks of the ongoing upward trend in risk appetite in world markets and the related strengthening of the zloty. Market sentiment was hurt by a series of disappointing macro data in the US (retail sales, industrial production, house starts), and bad news from companies (including poor results of Dell and Sony). Domestic macro data were mixed (better than expected industrial production and employment, but worse construction output and wages), but confirmed a gradual recovery of the economy (it is also suggested by improvement in the annual growth of revenues and financial results of companies) amid a gradual weakening of fundamental inflationary pressures (decline in most measures of core inflation). |
MPC minutes did not contribute anything new to the monetary policy outlook. MPC meeting this week probably will be in the background. The key domestic event will be release of retail sales data. But probably the most important will be developments in the global markets before the long weekend in the US.
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Download: Weekly economic update 23-29 November 2009
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16-22 November 2009
| The weeks ahead is full of information and data that may have a crucial impact on the behavior of financial markets and expectations of prospects of world economy. Publications in the US and the euro area will be particularly important, as they may determine the direction of change in global equity markets and risk aversion. As regards the domestic data, we expect to see a combination of indicators which will have in total positive impact on the debt market, as they will show that although the economy is gradually bottoming out, there is no reason to fear a significant inflationary pressures in the medium term. |
Balance of payments data released last week, showing significantly lower current account deficit than forecast and improvement in its financing structure, helped to strengthen the zloty, which may soon be heading in the direction of 4.06 per euro. Still, we believe that there may be a correction ahead due to the belief of some investors that rising prices of risky assets observed in March has outpaced of the improvement in the economic fundamentals.
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Download: Weekly economic update 16-22 November 2009
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9 - 15 November 2009
Last week after exceeding 4.30 against the euro the zloty recovered due to rebound in risk appetite additionally supported by some events in the region (lack of rate cut by Czech central bank). Stronger zloty slightly supported short-term bonds and longer-term bond yields slightly increased under pressure from core debt markets and moderate increase in IRS rates. This week the Finance Ministry denied speculation on possible lifting the precautionary threshold levels for the debt to GDP ratio only to propose unfavourable in the long term step increasing the share of pension contribution deducted from wage in favour of Social Security Fund at the cost of open pension funds. Such action would lower risk of breaking the 55% threshold for public debt to GDP ratio in 2010. The risk of breaking the level was indicated in new edition of economic forecasts of the European Commission (for 2011 the EC predicts breaking the constitutional level of 60%). As for now, the Prime Minister stresses the proposal needs improvements.
At the beginning of this week the key focus of attention for the global markets may be outcome of the G20 meeting and echo of weak data from the US labour market. |
With low number of macro data releases abroad we expect consolidation in markets. Investors will focus on the euro zone’s GDP data for Q3, the German ZEW index and data on US consumer confidence. Locally we will get portion of new macro figures. We expect CPI inflation drop in October was weaker than the market expects, which may put a pressure on rise in short-term market interest rates. On the other hand, we expect the IRS rise will be ended, which will be supportive for bonds. We predict rise in C/A deficit in September was stronger than the market expects and expect a strong rebound in money supply due to effect of PGE’s IPO (leveraged orders for stocks purchases). The local data should not have major impact on the zloty, which in our view should stabilise this week
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Download: Weekly economic update 9 - 15 November 2009
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2-8 November 2009
| Last week saw a significant deterioration in sentiment in global markets, among others due to growing concerns about deterioration in the largest economies after the expiry of stimulus programs, disappointing results of companies, and worse than expected macro data (such as US consumer sentiment). Better than predicted GDP data in the US halted a correction in the stock markets, but the correction is still looming and moods are sensitive to any negative signals. In this context, data and events scheduled for this week will be key determinants for short-term trends. If there are no new optimistic signals, the bearish moods may prevail again. MPC has not changed interest rates in October, although it shifted the informal policy bias was to neutral, at the same time indicating that there will be no changes in interest rates until the end of the year, which was clear for the market anyway. |
To assess the prospects for monetary policy, we should now pay attention to comments of candidates for new MPC members, but the problem is they will not be officially confirmed at least until mid-December. There is a lot of events in this week’s agenda that can alter market sentiment. In addition to indexes of economic activity, comments after the meetings of central banks will be essential, as well as monthly data from the US labor market.
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Download: Weekly economic update 2-8 November 2009
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26 October - 1 November 2009
| Last week in the global markets brought mixed data and earnings reports for Q3, but positive news were prevailing. As a result, risk appetite increased, which translated into increase in yields on the core debt markets and rise in EURUSD above 1.50. Such tendencies in the global markets were positive for the zloty and during the week EURPLN fell to 4.15, the lowest level in a month, although it was followed by a limited correction. Higher risk appetite and the zloty appreciation as well as generally lower than expected domestic macro data led to strengthening in the domestic interest rate market in the first part of the past week. However, later on there was profit-taking and the debt market stabilized at levels seen a week earlier. Although local macro figures were in most cases lower than expected, they were not disappointing enough to change our predictions for economic growth and assessment of monetary policy prospects. |
Meanwhile, fresh comments from the MPC suggest that a change in informal policy bias to neutral will probably be done by the new Council. Anyway, there probability of such a move this week has decreased considerably. However, this does not change much expectations regarding interest rate changes by the next MPC, although giving new central bankers a possibility to change bias to neutral may help them to build anti-inflationary credibility without swift rate hikes. Apart from the MPC meeting, there will be no important local events this week. As to events abroad, there will be many major data releases (focus on advanced US GDP figures for Q3) and numerous earnings reports.
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Download: Weekly economic update 26 October - 1 November 2009
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19-25 October 2009
| Last week there was an increase in risk appetite and gains in the equity markets, which were triggered by a series of better-than-forecast results of foreign companies. This resulted in the strengthening of the euro against the dollar to the strongest level in 14 months and rebound of the zloty. During the week, the impact of regional factors has been positive, especially in the face of decreasing concerns about the devaluation of the lat and stabilising situation after the collapse of the government in Romania. Improvement of the current account balance in August was also slightly positive for the zloty. Appreciation of domestic currency, better moods in the world markets, and larger than forecast drop in inflation has contributed to declines in market interest rates. The market may also grow doubts as to the time of change of informal monetary policy bias, because of recent statements by Jan Czekaj. More light may be shed on the situation by the minutes of the last MPC meeting. |
In the next few days we expect the consolidation of the zloty against the euro close to current levels with possible appreciation in case of further improvement of global sentiment, which could be triggered by a positive surprise in the data from the real estate market in the US and the subsequent financial results of companies (including this week’s Apple, Yahoo, 3M, Microsoft, Bank of New York Mellon, AT&T, McDonald's, Altria Group). Our forecasts of production and core inflation are slightly above the market, which may limit the declines in market rates. However, the debt market will be supported by the stabilization of the zloty. An important test for the market will be auction of long-term BGK bonds.
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Download: Weekly economic update 19-25 October 2009
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12 - 18 October 2009
| In the last week, zloty was weakening, similarly to other currencies in the region, which was caused, among others, by rising concerns about the situation in the Baltics, heated political atmosphere in some countries (Romania, Poland) and growing expectations for interest rate cuts in the Czech Republic and Hungary. At the same time, the appetite for risk in global markets remained at relatively high levels, supported by macroeconomic data, financial results of companies in the US and the first rate hike since the outbreak of the crisis (in Australia), in reaction to signs of revival in the economy. This week the domestic market will focus on the publication of local data, mainly about inflation and balance of payments, although the mood abroad will continue to play an important role. Beginning the week should be quiet because of the market holiday in the US and Japan. |
We expect a decline in CPI inflation to 3.5%, in line with consensus, which should be neutral for the market. In turn, the balance of payments data should show improvement in C/A balance (although in our opinion not as strong as predicted by the market), which may be mild support for the zloty. In the second half of the week there will be plenty of key data releases abroad, including retail sales and consumer sentiment in the US, industrial output in the US and the euro area, and earning reports for Q3 of major listed companies.
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Download: Weekly economic update 12 - 18 October 2009
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5 - 11 October 2009
| Past week brought significant deterioration in moods on the global markets along with a series of weaker than expected data from the US economy, including the closely watched non-farm payrolls report. This translated into fall in EURUSD and increased interest in safe assets and at the same time negatively affected the emerging markets currencies, including the zloty (EURPLN nearly 4.30 for a while). The domestic debt weakened moderately. Apart from global factors, the negative impact on the domestic currency was related to disappointing macro data – lower than expected PMI manufacturing for September, fall in consumer confidence indices reported by the stats office and Ipsos as well as unfavourable revision in balance of payments statistics. The FinMin’s estimate of CPI inflation in September proved in line with expectations and had no impact on the market. Outcome of the MPC meeting did not surprise. Interest rates were kept on hold and informal easing policy bias was maintained. However, there was a clear indication in the statement that one should expect change in policy bias to neutral in the near time – we expect it will take place in October when the new NBP projection for inflation and GDP will be revealed. |
Monetary Policy Guidelines for 2010 adopted by the MPC did not bring changes in construction of the inflation target and ways of its realisation as well as in overall framework of monetary policy (direct inflation targeting). As to new instrument of monetary policy proposed by the NBP governor, the MPC only approved and included in the Guidelines the discount credit while purchase of commercial banks’ bonds by the NBP did not win support from the Council. This week there are no major event locally apart from 2Y bond auction, so the domestic market will be driven mainly by changes in moods on the global markets. Sentiment abroad will depend on new macro data, outcome of the ECB meeting and the first of the US Q3 earnings reports, which come towards the end of the week.
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Download: Weekly economic update 5 - 11 October 2009
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28 September – 4 October 2009
Last week the rating agencies Fitch and Moody’s warned that in case of no fiscal consolidation starting from 2011, Poland’s sovereign rating and its outlook will be under pressure. This information was one of factors that contributed to significant zloty weakening in recent period. In the debt market, after slight increase in yields at the start of the week, later on there was a rebound following a drop in IRS. Some support for the market was the result of long-term bonds auction. Data about retail sales did not affect the market, similarly to core inflation and MPC minutes.
In our view, at this week’s meeting the Council will keep interest rates unchanged and will refrain from change in informal policy bias at least until October. PMI index to be released in the middle of the week will again show smaller drop in economic activity than in the previous month, and the Ministry of Finance will show its forecast of inflation in September. |
However this should have no significant impact on the interest rate market. The latter will remain under negative impact of concerns about fiscal situation. We also expect further gradual depreciation of the zloty. Factors that may stop negative trends in the local market are good economic data abroad. This week crucial publications will include US non-farm payrolls data and indices of economic activity.
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Download: Weekly economic update 28 September- 4 October 2009
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21 - 27 September 2009
| Although a set of domestic macroeconomic data released last week had no big impact on the assessment of economic perspectives and on investors’ behaviour, there were quite significant fluctuations in the Polish exchange rate and interest rate markets, among others under influence of changing moods in global risk appetite. The zloty weakened to almost 4.25 against euro and then temporarily strengthened to below 4.10. There were large movements in the domestic debt market after information from the Ministry of Finance about possible cancellation of long bonds supply until the end of this year. It seems to us that a positive impact of this information may be offset quite quickly by large supply of bonds from the BGK (although part of it may be purchased by the EBI) and possible sale of bonds by the PZU, as well as negative perspective of large supply of Treasury debt planned for the next year. |
This week the number of data releases will be smaller, and the zloty may remain vulnerable to changing sentiment in world stock markets, which will react to information from the US and euro zone. Wednesday will be crucial, as in Poland there will be 20Y bond auction and CSO press conference, while in the US the Fed’s decision will be announced.
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Download: Weekly economic update 21 -27 September 2009
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14 - 20 September 2009
| The past week in the Polish financial market was marked by negative news about the 2010 budget, which led to clear depreciation of the zloty (EURPLN close to 4.20) and substantial rise in bond yields. This took place despite higher risk appetite in the global markets, reflected in EURUSD rise to the highest level this year (above 1.46) and fall in prices in the core debt markets. On Friday, the zloty was negatively affected by NBP data, which showed C/A gap of ca. €0.5bn in July instead of an expected surplus of over €0.2bn. This was due to trade gap of around €0.5bn, high deficit on the income account (mainly as a result of dividend payments) and low surplus in the current transfers (not much flows from the EU). |
Exports fell deeper than expected while imports level was higher than in previous months. This week the zloty may still weaken due to fiscal news (EURPLN likely above 4.20), although continuation of increased risk appetite may prevent it. Yields of local bonds should rise further, but they may be supported by weaker than expected (in case of most variables our forecasts are below consensus) domestic macro figures.
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Download: Weekly economic update 14 - 20 September 2009
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7 - 13 September 2009
| Last week there were no major changes in Polish financial market. Zloty fluctuated in narrow range and after correction in the middle of the week, there was a rebound later on. Debt market behaviour was similar, and it was additionally supported by good results of bond auction, and FinMin’s forecast of inflation in August had limited impact on the market, which has been assuming for some time that the next move in monetary policy in Poland will be a rate hike. Such scenario is being signalled more and more clearly by comments of MPC members, who condition a decision about bias change from easing to neutral on persistence of economic revival and projection, which will show medium-term inflation outlook. OECD revised up GDP forecasts for most economies, and IMF is preparing for such a move. |
After publication of better than predicted GDP data for Q2, a median of market GDP forecasts for Poland has also increased. Moreover, domestic data (PMI) were a positive surprise once again last week. At the start of the week the Ministry of Finance will present elements of 2010 budget draft and in our view its presentation should be neutral for the market. Moreover, we will see next data from domestic economy. We predict a maintenance of surplus in current account, amid still strong decrease in exports and imports. We stick to the view that a correction in the FX market is likely, which will depend on global moods. This week the number of publications abroad is limited.
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Download: Weekly economic update 7 -13 September 2009
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24 - 30 August 2009
| Overtone of domestic macro figures released last week was mixed. On the one hand, industrial output and PPI figures came in lower than expected. On the other hand construction output data were much higher than predicted, boding well for fixed investments, average wage growth was stronger than forecast and business climate indicators showed continuation of improvement in August. MPC members stress that a possible change in policy bias, which was already discussed at the July meeting, will be possible only when the economic recovery is persistent, but at the same time repeat that next interest rates reductions is not possible due to elevated level of current inflation.The Council is highly unlikely to lower interest rates this week and the market will focus on comments regarding strength of economic recovery. In our view, the improvement in economic situation may not come swiftly, which together with some inflation drop will make another rate cut possible. |
After a correction at the start of the week, the zloty was appreciating later on, approaching the important resistance level. We keep our view one should expect a correction of the zloty, although the move could be limited, if more positive macro figures appear. This week the key domestic data release will be Q2 GDP figures and we expect they will show slowdown in private consumption growth and fall in investments. There will be many data releases abroad including US housing market data, revised US Q2 GDP figures and a number of euro zone economic activity indices.
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Download: Weekly economic update 24 - 30 August 2009
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17 -23 August 2009
| Last week there was no clear direction of changes in risk appetite. In the first part of the week market participants became more cautious ahead of the FOMC meeting, which negatively affected the stock markets and the zloty. However, the official statement of the Fed was well-received by investors, bringing about an improvement in market sentiment and the zloty appreciation. An additional support for the local currency was clearly higher than expected surplus in Poland’s current account of the balance of payments for June. This week will be full of important data releases both locally and abroad. |
The key focus of attention for the zloty will be data abroad and related to that changes in risk appetite. As to the Polish interest rate market important factors include the zloty performance and the local macro figures, which will allow to assess domestic monetary policy prospects again following the higher than expected CPI numbers released last week.
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Download: Weekly economic update 17-23 August 2009
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10 - 16 August 2009
| For the better part of last week, moods in international financial markets were quite optimistic, as most of economic data and companies’ earning reports indicated that a period of deepest contraction in economic activity around the world is already behind us. Nevertheless, question marks concerning a pace of recovery from recession are still there, and investors’ moods remain vulnerable to every piece of new economic data and information. This week, among the most important events abroad we will see FOMC meeting and statement, data from US and euro zone about inflation, preliminary Q2 GDP figure in the euro zone, and American consumers’ confidence survey. In the domestic market, investors’ attention will focus on CPI inflation data for July. We predict a slight fall in inflation to 3.4%, although the Ministry of Finance estimated that it remained steady at 3.5%. |
Monetary statistics are likely to show a deep slowdown in M3, deposit and loan growth, among others due to significant zloty appreciation in July. Balance of payments data for June will probably show another surplus in current account amid deep fall in exports and even stronger collapse in imports. A measure of sentiment in the debt market will be auction of 5Y bonds on Wednesday.
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Download: Weekly economic update 10-16 August 2009
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3 - 9 August 2009
| Last week financial markets were still under influence of better than expected financial results of companies abroad, which supported positive moods in global markets, leading to further gains in equities. Higher risk appetite was responsible for higher demand for Polish assets and stronger zloty and lower yields as a consequence. The MPC decision of keeping rates and easing bias unchanged did not have impact on the market. Comments of mainstream and hawkish members of the Council showed that currently they did not see room for rate cut, though they did not exclude such a possibility in the case of weaker data. Andrzej Sławiński suggested that the economy may be at the turning point. We still expect that the next macroeconomic statistics will convince the MPC to cut rates again after summer. This will also depend on the scale of inflation decrease. Similarly as the MPC decision, the comment by deputy finance minister Ludwik Kotecki, who finally admitted that Poland will not join the euro zone in 2012, had no impact on the market. |
He added that in August the government will publish the new strategic framework for euro adoption plan. On the other hand, President Lech Kaczyński said that optimistic and realistic date for euro adoption is 2015. CPI forecast by the Ministry of Finance will be the key for the market at the beginning of the week. Our forecast assumes a moderate inflation fall and is consistent with market consensus. PMI index will be the indication regarding the scale of improvement in manufacturing sector and slight increase is forecasted. As regards events abroad, another financial results of companies will be important and in terms of data US non-farm payrolls will be in focus. The ECB will most likely keep rates on hold and the market will concentrate on central bank’s assessment regarding economic prospects.
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Download: Weekly economic update3 - 9 August 2009
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27 July - 2 August 2009
Last week was marked by rise in risk appetite globally. The euro gained to the dollar and core debt markets weakened.
At the same time, there clear strengthening of the emerging markets’ currencies, stocks and bonds. The zloty reached the strongest levels since January and domestic bonds gained substantially. The driver of increase in risk aversion were stronger than predicted macro figures from the US and the euro zone as well as mostly better than expected earnings reports for Q2 revealed last week. Domestic factors had no visible impact on the zloty and Polish bonds, although higher than expected retail sales in June and information about privatisation acceleration were supportive for rise in investors’ interest in Polish assets. The difference between actual retail sales figures and forecasts was not large enough to alter our estimate of private consumption growth in Q2 at 2%YoY versus 3.3%YoY in Q1. Moreover, taking into account all the monthly economic activity indicators for Q2 we do not change our estimate that GDP growth rate lowered to ca. 0% in that period. In our view the domestic macro data released during the past week were also neutral for the MPC. |
Minutes of the MPC meeting in June showed that majority of MPC members were convinced to deliver next rate cut by fall in inflation and economic slowdown. We still think that at the meeting this week and at least until the end of summer the Council will not change rates, but we believe that later in the year the MPC may reduce rates again under amid further inflation drop and weaker demand. Apart from the MPC meeting, there are no major events scheduled domestically. The Polish financial market will be influenced by publication of next important macro data in the euro zone and the US as well as further earnings reports for Q2. As to events in the region, the markets will wait for decision of the Hungarian central bank on Monday and developments of the situation in Latvia, where uncertainty re-emerged whether the country will receive next tranche of financial aid from the IMF.
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Download: Weekly economic update 27 July - 2 August 2009
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20 - 26 July 2009
Domestic labour market data for June proved weaker than expected, showing clear lowering of average wage growth and higher than expected drop in employment and CPI inflation fell to the upper end of the allowed fluctuations around the target. Despite output and PPI figures for June were somewhat higher than expected, we keep our view there is still room for rate cuts. However, MPC members are becoming increasingly cautious in assessment of probability of next hikes.
Increase in risk appetite in the international markets in reaction to releases of better than expected financial results of companies for Q2 contributed to zloty strengthening, which also supported the debt market. Market rates fell mostly due to data on inflation and positive results of bond auction. |
This week next portion of data from the domestic economy will be released. We expect a slight decline in core inflation, marginal drop in retail sales in annual terms and a small lowering of registered unemployment rate as compared to May. However, the changes in risk appetite in the international markets will be crucial for the domestic financial market. In the coming days investors will focus on the testimony of Fed president Ben Bernanke before the Congress paying attention to comments regarding prospects of economic recovery, Fed monetary actions and fiscal stimulus of the government. Next financial results releases and companies’ profit forecasts for next quarters abroad will be another very important factor influencing the appetite for risk.
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Download: Weekly economic update 20 - 26 July 2009
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13 - 19 July 2009
| Amid lack of important publications, market attention last week was focused on events abroad, stock market trends, and budgetary plans for this and next years. PM Tusk’s proposal to transfer NBP profit for 2009 of over PLN10bn to the budget raised controversies and it may be expected that a debate on this subject will go on. However, this week fiscal issues may recede to the background amid huge number of macroeconomic data releases and earning reports of key companies overseas (including the major US banks), which may determine market sentiment around the globe. |
We expect to see local data that will confirm economic growth close to zero and diminishing inflationary pressure. Also, comments of MPC members will be important, as they may show when the next interest rate cuts may be expected.
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Download: Weekly economic update 13-19 July 2009
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6 - 12 July 2009
| Ministry of Finance’s inflation forecast for June released last week proved to be below range of analysts’ forecasts in Parkiet’s poll, which calmed down fears of some dovish MPC members and was one of factors positively affecting debt market. Nevertheless, one should remember this was just a forecast. MPC decisions about interest rates will depend on actual inflation data, which was underscored by Jan Czekaj. PMI index in manufacturing showed a rebound in June, however it was worse than expected and still remains below 50, which reflects a contraction in economic activity. Finance minister Jacek Rostowski said that an increase of budget deficit above PLN27bn is out of option, and the government has already found planned savings amounting to PLN3bn. On Tuesday the government will pass draft budget amendment, which main assumptions have been already presented, to the parliament. Moods in the global markets were transitory improved by another increase in the Chinese PMI, but then the sentiment was deteriorated by weaker than expected data from the US labour market. The ECB left interest rates unchanged last week. President Trichet said that rates are at appropriate level, although did not exclude their lowering. He expects an economic revival in the euro zone only in mid-2010, which indicates that rates in the euro zone will remain on hold for a prolonged period of time. |
Together with a rise in risk appetite the zloty appreciated during the week by over 2%, the strongest in the region, which was another factor contributing to fall in interest rates. Dollar was fluctuating in narrow range versus euro. This week, amid lack of key publications in Poland and abroad, investors will focus on domestic 5Y bonds auction, G8 meeting starting on Monday, and earning reports of international companies for Q2. The Bank of England is likely to keep main interest rates on hold this week. The zloty may appreciate further, but in next weeks we expect to see some correction. The debt market will be under influence of bond auction, international moods and next comments of MPC members.
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Download: Weekly economic update 6 - 12 July 2009
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29 June - 5 July 2009
| The beginning of last week brought deterioration in global markets sentiment under influence of first within last few weeks disappointing data (New York Fed index). However, later during the week moods improved amid better data releases (positive weekly statistics form the Us labour market, strong increase in Philly Fed index). A bunch of domestic economic data was dovish overall despite higher than consensus industrial production, mostly due to more significant than expected fall in CPI and PPI inflation measures, as well as low wage growth. The macroeconomic assumption for the next year budget, which were approved by the government (GDP growth at 0.5%, CPI inflation at 1%), should be treated as conservative. |
Changes in EURUSD rate were moderate, core bond markets weakened after temporarily strengthening, domestic yield curve steepened and the zloty slightly depreciated. This week, moods on the global markets will be set by Fed meeting and further important data from the euro zone and US. Besides, a publication of the OECD Economic Outlook due for release on Wednesday will also be an important event. In Poland investors will focus on the MPC meeting with expectations for another rate cut.
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Download: Weekly economic update 29 June - 5 July 2009
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22 - 29 June 2009
| The beginning of last week brought deterioration in global markets sentiment under influence of first within last few weeks disappointing data (New York Fed index). However, later during the week moods improved amid better data releases (positive weekly statistics form the Us labour market, strong increase in Philly Fed index). A bunch of domestic economic data was dovish overall despite higher than consensus industrial production, mostly due to more significant than expected fall in CPI and PPI inflation measures, as well as low wage growth. The macroeconomic assumption for the next year budget, which were approved by the government (GDP growth at 0.5%, CPI inflation at 1%), should be treated as conservative. |
Changes in EURUSD rate were moderate, core bond markets weakened after temporarily strengthening, domestic yield curve steepened and the zloty slightly depreciated. This week, moods on the global markets will be set by Fed meeting and further important data from the euro zone and US. Besides, a publication of the OECD Economic Outlook due for release on Wednesday will also be an important event. In Poland investors will focus on the MPC meeting with expectations for another rate cut.
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Download: Weekly economic update 22 - 29 June 2009
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15 - 21 June 2009
The week after the long weekend will be full of important data releases and events. Apart from new domestic data, that may affect market expectations concerning MPC decisions, the market will pay attention to government’s work on the budget (on Monday, the cabinet will approve and publish assumptions for 2010 budget, work on 2009 budget amendment is also in progress).
There are also plenty of data releases abroad in the agenda, which may influence sentiment in stock markets and global risk aversion. |
Currency markets in the region will also focus the situation in Latvia and fate of spending cuts proposed by the government, which is condition for help from IMF and EU (vote in the parliament on Wednesday). If the plan is approved, concerns about devaluation should ease.
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Download: Weekly economic update 15 - 21 June 2009
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8 - 14 June 2009
| Last week was marked by further rise in risk appetite in the global markets. As a result, the zloty initially was gaining in line with our expectations. However, positive impact of positive moods in the international markets was offset later in the week by negative pressure on currencies and assets in the region related to growing concerns over devaluation in Latvia. In effect, the EURPLN rate broke the important resistance level of 4.52 indicated by us last week and headed towards 4.60, reaching a weekly high at above 4.57. Much better-than-expected labour market data from the US led to temporary strengthening of the zloty, but did not prevent it from weakening as compared to levels seen a week earlier. For the domestic interest rate market an additional negative factor in the past week, apart from the weaker zloty and worse sentiment towards the region, was quite high inflation estimate for May at 3.8%YoY published by the FinMin. The forecast is likely to move market consensus upwards from earlier reported 3.7%YoY. |
Besides, an upward pressure on market interest rates was related to recent comments from MPC members, which were less dovish than earlier. The ECB decision to keep rates on hold and no new decision regarding quantitative easing were neutral for the international markets. EURUSD initially was going up along with rising risk appetite and reached a few weeks highs, but then a profit-taking took place, deepened by the non-farm payrolls report, which supported the dollar. Yields in the core debt markets reached the highest levels in a few months. This week the global markets are likely to stabilise amid a reasonably light agenda. Meanwhile, the Polish market is likely to be still under negative pressure of developments in Latvia.
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Download: Weekly economic update 8 14 June 2009
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1 - 7 June 2009
In line with expectations the Monetary Policy Council kept official rates on hold, though they decided to lower obligatory reserve requirement by 50 bp to 3%. The content of the Council’s statement, including maintaining easing bias in monetary policy, confirms our expectations the MPC will resume interest rate cuts at the next meeting after the publication of new NBP’s inflation projection. The timing of next steps regarding reduction in obligatory reserve will depend on results of last move. The GDP data for the first quarter should not be an obstacle in easing cycle by the MPC. They showed growth by 0.8%YoY with private consumption increase by 3.3%, investment growth by 1.2% and strong positive contribution of net exports.
At the beginning of the week investors’ attention will be focused on inflation forecast for May, which will be announced by the Ministry of Finance , as well PMI data. |
Just after the publication of CPI for April the ministry said they expected a decrease of 12M CPI in May to 3.4%, however, we think this estimate could have been revised upward amid higher prices of food and fuel. Our CPI forecast is at 3.6%, while market consensus at 3.7%. As regards manufacturing PMI, we foresee increase stronger than the market given better moods in recent flash data for euro zone. The second part of the week will be packed with foreign data, with US labour market data as the key. Also, the European Central Bank and the Bank of England will meet this week.
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Download: Weekly economic update 1 - 7 June 2009
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25 - 31 May 2009
| Domestic data statistics over the past week (higher-than-expected wags and employment and lower-than-expected output and PPI figures) as well as retail sales data due for release this week are not likely to be key factor for outcome of the MPC meeting scheduled for Tuesday-Wednesday. We predict, which is in line with market consensus, that the MPC will leave rates on hold this week, mainly due to temporarily elevated CPI inflation. Additional argument for rate-setters not to hurry with rate cuts is a rebound of economic activity indicators globally. However, we still expect that inflation fall in May as well as the new NBP projection of inflation and GDP will convince the MPC to resume monetary easing and trim rates in June. |
GDP data for Q1, to be published on Friday, should show significant slowdown of the economy and also be conducive to continue rate cuts. Over the past week the zloty gained versus major currencies amid higher risk appetite globally, which together with good results of long-term bonds auction led to slight strengthening in the local interest rate market. This week the zloty performance will remain mainly under influence of global market sentiment with relatively lower importance of local events.
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Download: Weekly economic update 25 - 31 May 2009
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18 - 24 May 2009
| The past week was marked by increase in risk aversion in the global markets, which brought about depreciation of the zloty, upward move in the Polish yield curve, moderate drop in EURUSD and strengthening in the core debt markets. Moods in the global markets were negatively affected by disappointing data on retail sales in the US, which undermined hopes for swift recovery in the global economy. As to local events, the negative factor for the Polish interest rate market were higher-thanexpected CPI data for April, confirming that in May the MPC will most likely again keep rates on hold. Besides, the zloty and domestic bonds were under negative influence of information pointing to deteriorating situation in Polish public finances. On Wednesday the European Commission released the report with negative assessment of fiscal policy in Poland (among others, it underscored a rise in structural deficit in 2008) and announced starting excessive deficit procedure against our country. In June the Commission will present recommendations concerning necessary adjustments in Polish fiscal policy. |
Meanwhile, PM Donald Tusk admitted that this year’s central budget deficit will have to be increased in the face of significant economic slowdown. Negative developments in the economy were confirmed by monetary statistics for April. This week, we will see domestic data that will be important hints about developments in economic activity. In the light of our forecasts, they will not change expectations concerning future MPC decisions. For the time being, majority of central bankers signal a need of further rate cuts, but also say that they want to wait for the new projection and fall of inflation in May. This week will also see publications of data abroad that may have significant impact on sentiment in global financial markets.
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Download: Weekly economic update 18 - 24 May 2009
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11 - 17 May 2009
| Updated forecasts of the European Commission were pessimistic. Nevertheless, even though predictions concerning economic growth in Poland have been trimmed substantially (much below market consensus), they are still among the highest in the EU in 2009 and in 2010 expected GDP growth in Poland is the highest in the community. The Ministry of Finance was sceptical about Commission’s estimates, although later on it released a conservative forecast of GDP growth and inflation for 2010. On Wednesday, the EC will make decision on opening the excessive deficit procedure against Poland and will publish a special report. In a situation when the level of fiscal criterion will be exceeded by the majority of EU member states, a significance of this factor is not too high and it is hard to expect sanctions from the Commission. Quite low risk aversion in international markets and IMF’s decision about granting the FCL to Poland contributed to zloty strengthening. There was a slight correction in the debt market. Results of stress tests for US financial institutions had positive impact on investors’ sentiment. The ECB decision had smaller impact on market fluctuations last week. |
This week, the most important factor for interest rate market will be inflation data. Further growth in CPI will most likely contribute to another pause in monetary easing in Poland. If inflation does not fall in May below the upper end of fluctuations band around target, also a rate cut in June would be under threat, however in such situation the June NBP projections would be crucial. Its importance and aversion towards negative real interest rates have been emphasised in MPC members’ comments. We predict further fall in money supply growth and a return of current account balance below zero. Abroad, we will see flash Q1 GDP data in the euro zone and retail sales and production data in the US, which will be important in the context of rebound in economic activity and sentiment.
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Download: Weekly economic update 11 - 17 May 2009
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4 - 10 May 2009
| After long May weekend, liquidity in the European markets may remain limited, among others due to market holiday in London on Monday. However, there will be several news, which may influence the fluctuations of investors’ moods. In the domestic stage on Monday there will be two key releases: PMI and inflation forecast of the Ministry of Finance. At the start of the week the European Commission is going to publish its updated macroeconomic forecasts for EU countries, and after this release a recommendation on starting excessive deficit procedure against Poland may be issued. After the weekend in the US a report summing up the results of stress-tests for the US banks will be published. |
More news after the weekend about growing pace of swine flu spreading may also affect the market sentiment. During the week there will be a number of important macroeconomic data releases in the euro zone and in the US. Decisions of the central banks in Europe (ECB and Bank of England), as well as releases of next Q1 earning reports of companies (including some domestic banks) may also be important.
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Download: Weekly economic update 4 - 10 May 2009
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27 April - 3 May 2009
| New data released last week increased probability of a pause in rate cuts by the MPC in April, which is now our base-case scenario. However, the medium-term prospects for economic growth and inflation have not changed significantly and thus we still expect the reference rate to go down to 3% this year. Lowered chances for a rate cut in April led to increase in FRA and IRS rates last week, although bond yields did not change much. The zloty clearly weakened, despite the stock markets recovered from losses at the beginning of the week and other currencies in the region gained. Factors conducive to the zloty weakening were negative news about Poland’s fiscal stance and earlier relative outperformance of the domestic currency after news about FCL from the IMF. |
This week important factors for the Polish market, apart from MPC and FOMC meetings as well as next data releases locally and abroad, will be publication of the document outlining conditions for ERM2 entry, which is expected to be officially approved by the government at the meeting on Tuesday.
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Download: Weekly economic update 27 April - 3 May 2009
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13 - 19 April 2009
| Despite the small number of data releases the pre-holiday week was a period of high volatility in the financial market and significant changes in moods. Amid limited liquidity, the increase in risk appetite and wave of optimism in the stock markets before Easter triggered a significant strengthening of the currencies in the region. How long this lasts will depend on direction in which the investors’ sentiment changes after holiday in reaction to the incoming quite large injection of news. Calendar for the next few days includes not only a number of releases of macroeconomic data in the domestic stage and in the core debt markets, but also news on financial results from next companies listed overseas, which may be crucial for the assessment of chances for fighting off the crisis. We expect a deepening of collapse in foreign trade turnover in February in a scale close to the market consensus. |
However, the current account deficit should clearly decline, among others due to large surplus in current transfers. The March CPI inflation and money supply growth should according to our forecasts be below the median of market expectations, and our forecast for the slowdown in wage growth and drop in employment is in line with market consensus. Overall, data should not give new arguments against continuation of interest rate cuts as poor prospects of economic growth mean a weakening of inflation pressure in the medium term.
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Download: Weekly economic update 13 - 19 April 2009
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6 - 12 April 2009
The key event of the past week was G20 summit. In expectation for its result and in reaction to better than predicted US data (ISM, housing market) and China (ISM), there was improvement in global sentiment, which resulted in a rebound in stock markets and significant zloty appreciation. G20 countries decided during the summit that IMF and other international institutions will receive additional ca. 1 trillion dollars, which was positively received by financial markets. Euro strengthened versus dollar on higher risk appetite and in reaction to ECB decision. The European Central Bank surprisingly cut main interest rates by only 25 bp, while the market was expecting a 50 bp cut. However, the ECB president did not rule out further reduction and we think this may happen in June, after quantitative measures to be introduced next month. Additional factor that may have positively affected the zloty versus other currencies in the region was Fitch Ratings report, according to which Poland was one of a few countries in the emerging Europe that is least exposed to economic crisis. In turn, a positive factor for debt market was good result of bond auction. Optimistic signal for domestic manufacturing sector was PMI index released last week, which rose more than expected.
Ministry of Finance’s forecast of inflation in March was also significantly higher than market consensus.
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A number of hawkish MPC members called recently for a pause in monetary easing in the nearest time. However, in our view such risk would be only in case of significant depreciation of the zloty and data about production and inflation much above market expectations. There are no important data releases in Poland this week, while calendar of publications abroad is also quite thin.
The end of the week should be peaceful in international markets due to market holiday in many countries. In Poland, the key issue for debt market will be auction of long-term bonds. After maintaining positive sentiment and high risk appetite, the demand for bonds should be high. Besides, after significant zloty appreciation we may see a slight profit taking this week. The Bank of England is going to make decision about interest rates today and it is likely that rates will remain unchanged. In the US, FOMC minutes of the last meeting will be released, during which the bank announced purchase of Treasury bonds by the Federal Reserve.
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Download: Weekly economic update 6-12 April 2009
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29 March - 5 April 2009
Last week brought next domestic data (rise in unemployment, slump in consumer confidence and first annual fall in retail sales in many years), which confirmed economic slowdown and added to list of argument in favour of further rate cuts. In reaction to deterioration in prospects for economic growth, in line with expectations the MPC trimmed interest rates by 25 bps at its meeting last week, bringing the reference rate down to 3.75%, the historical low.
However, the Polish market was influenced mainly by changing moods in the global markets (rise in stock indices for the better part of the week and drop on Friday).
News from the region were also important, i.e. negative impact on political turmoil in Hungary and the Czech Republic, and positive influence of information about IMF support for the region – more favourable rules for granting funds to credible emerging markets and decision on aid packages for Romania and Serbia. |
Towards the end of the week, the negative moods dominated. Rise in risk aversion weakened the zloty and local bonds. If the deterioration in moods continues, the zloty may weaken further, although the G20 meeting could revive risk appetite. EBC meeting and the US non-farm payrolls will be important as well.
Domestically, important factors include PMI, FinMin’s inflation estimate and auctions of government securities.
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Download: Weekly economic update 29 March - 5 April 2009
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23 - 29 March 2009
| Decision to increase measures of quantitative monetary easing by Fed had only temporary positive impact on markets, which after reconsideration saw more threats than benefits of the central banks’ decision, pushing stock prices lower again. In effect, after a period of zloty strengthening, last week saw a correction and profit taking that we anticipated last Friday. One should be aware that in the short fun volatility of the zloty may remain high, and a main factor determining currency movements will be moods in international markets and risk aversion. However, we still expect that the zloty should be gradually gaining strength. Data released in Poland last week confirmed that economic growth decelerated sharply in recent months, although at the same time they delivered some arguments for hawks (production slightly above forecasts, surge in PPI). |
In our view, there is still enough arguments in favour of continuation of monetary easing, so that the MPC may decide to apply another 25 bp rate cut. Data that will be released one day before the MPC decision are expected to confirm a clear deceleration in retail sales (consumption demand) and rise in unemployment, which will be also in favour of next interest rate cut. As regards data abroad, US housing market data will be in the foreground, together with German Ifo index and euro zone’s PMI activity indices.
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Download: Weekly economic update 23 - 29 March 2009
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16 - 22 March 2009
| Last week was marked by rising risk appetite in global markets, among others after information from major US banks (e.g. Citibank and JP Morgan) about relatively good financial results in first months of this year. Improvement in global moods and sentiment towards the CEE region was also driven by decision of the SNB to lower rates and intervene in the FX market to weaken the franc. The zloty significantly gained together with other currencies in the region and market interest rates clearly fell. In the international markets there was rise in EURUSD and weakening of the core debt market. |
Domestic macro data (CPI inflation rise to 3.3%YoY and narrowing of the trade gap) had no impact on the market. This week we will get next dose of local macro numbers, but changes in moods on the global markets are likely to remain the key factor.
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Download: Weekly economic update 16 - 22 March 2009
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9 - 15 March 2009
| The first week of March brought no information that changed substantially our assessment of economic situation in Poland and abroad. However, one should notice a change in behaviour of financial markets participants, who started distinguishing between particular countries in our region, which was reflected in forex markets performance. It was triggered by publication of several reports and articles, underscoring relatively good assessment of situation in Poland and Czech Republic as compared to other countries in the region. Data about GDP growth in Q4 2008, which were close to our estimates, also confirmed relative strength of our economy – annual GDP growth in Poland, despite a clear slowdown, was one of the highest in the EU; also, Poland was one of a few countries that avoided a negative quarterly growth in GDP in Q4. The nearest days should pass in expectation for publication of Friday’s data about inflation. As every year, data for February is biased with additional uncertainty resulting from effect of weights change in CPI basket, which is hard to asses a priori. Our forecast, consistent with market consensus, predicts slight rise in inflation to 3.2%, while the Ministry of Finance estimated it should be 3.4%. |
Comments of MPC members following the data release will be equally important as the data itself. One should keep in mind that the MPC used to predict possible inflation rise in the nearest months, and in spite of that it anticipated a fall in inflation below the target in the medium run. Data about balance of payments for January are not likely to be optimistic, as they will show a deep slump in exports and imports, following sharp contraction in industrial production. Current account deficit in relation to GDP should remain at moderate level 5.5%. Number of key events abroad is limited this week, with data about retail sales in US and euro zone in the foreground. Comments from the Fed’s Bernanke will also be closely watched. Polish borrowers will be also interested in the Swiss National Bank’s decision about interest rates, due on Thursday.
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Download: Weekly economic update 9 - 15 March 2009
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2 - 8 March 2009
| Last days brought stabilisation of the zloty as compared to previous weeks, following positive influence of coordinated intervention of central banks in the region in defence of currencies and announcement of support for the region in the form of loan from the World Bank, EBRD and EIB, which offset negative impact of downgrade in Ukraine’s rating. Decision of the MPC to lower rates had no visible impact on the zloty. The MPC statement, the NBP projection of inflation and GDP as well as comments from MPC members indicated a room for further monetary easing. In turn, during social summit at the President’s Palace, a chance appeared for consensus of all political forces for euro adoption in 2014. In the local interest rate market there was slight fall in IRS curve and in yields of shorter dated bonds while the long end of the curve weakened. At the beginning of this week the key factor for the interest rate market will be the FinMin’s inflation estimate for February. |
We expect slight increase in the CPI inflation to 3.2%YoY, which is consistent with the market consensus. An important gauge of sentiment in the domestic debt market will be auction of bonds. The Poland’s PMI will indicate continuation of a downturn in manufacturing. Locally we will also get GDP data for Q4. As regards sentiment towards the region, an important factor will be outcome of the EU summit, which may concern some aid for some of the bloc’s economies. The ECB is expected to cut rates at the meeting this week while the key event in the US will be release of the non-farm payrolls report.
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Download: Weekly economic update 2 - 8 March 2009
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23 February - 1 March 2009
| NBP report about costs and benefits of euro adoption showed a positive net consequences for economic growth, though it suggested the time of a crisis is not a good period for entering ERM2. Notwithstanding this, the Prime Minister confirmed a will to enter the ERM2 system even without changes in the constitution, and head of PO parliamentary caucus said that talks with the ECB are already under way. We maintain our view that entering ERM2 without legal changes and amid uncertainty concerning meeting of convergence criteria is connected with significant risk. Nevertheless, such news, together with exchange of EU funds on the market by the Ministry of Finance, contributed to zloty rebound from near all-time lows recorded last week due to investors’ speculation against currencies in the region. Zloty strengthening helped interest rate market to recover, as weakening zloty was limiting expectations for further interest rate cuts. Strong deceleration in economic growth was confirmed by data about industrial output and pessimistic news are also coming from CSO report about business climate in February. Those data, as well as retail sales figures to be released this week, will be arguments that will influence the MPC decision about continuation of monetary easing, this time in 50 bp scale. We see a risk of lower scale of rate cut due to zloty depreciation amid comments of MPC members. |
Although the median of market forecasts points to 25 bp rates cut, the market consensus shows the MPC should reduce rates by 50 bp. An important factor for Council’s decision in February may be the new projection of inflation and GDP. In our view, similarly as in two previous months, exchange rate reaction to the rate cut should be very small. If there is no another wave of risk aversion, the zloty should stabilise, being supported by possible next movements of the Ministry of Finance in the FX market, positive tone of reports of investment banks and World Bank about Poland, and news about possible support for ailing euro zone economies. These factors, as well as MPC decision, would support a drop in market interest rates.
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Download: Weekly economic update 23 February - 1 March 2009
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9 -15 February 2009
| The last week was the period of significant worsening of moods in the Polish financial market, which caused zloty depreciation and weakening in the bond market. Among market participants some doubts appeared whether the scale of domestic currency depreciation would lead to limiting moves of the Monetary Policy Council in the cycle of monetary expansion, which was reflected in higher FRA and IRS rates. However, in our opinion, arguments in favour of further rate cuts are still valid, and this will be supported by the next series of weak economic data releases in the reminder of the month. This week we will know only a few pieces of information, including balance of payments statistics as well as CPI inflation and money supply. Data crucial for the outcome of MPC meeting (labour market figures and industrial production) will be released in the following week and fixed income market may stay on relatively weak levels until then. As regards this week’s data, we forecast a continuation of significant exports decrease (-11.6%YoY in December), though even more significant fall (more than 20%) will probably be visible only in the data for January. |
In our opinion, January’s CPI inflation figure will be higher than suggested market consensus, but in the following months inflation is likely to fall to the level of NBP inflation target (2.5%), or even below despite zloty weakening. Also, it is worth to notice that according to NBP survey released last week situation in credit markets is difficult with a dramatic constraint in loans supply in all segments of the market. In spite of this factor, January’s data on money supply will show only moderate deceleration in broad money (to 18.4%YoY) and total credits (to 35.9%YoY), which is connected with higher value in zloty terms of foreign exchange denominated loans and deposits. For the Polish foreign exchange market, other factors than domestic data will be important (global markets moods, level of risk appetite and trends of other currencies in the region).
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Download: Weekly economic update 9 -15 February 2009
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26 January - 1 February 2009
Data released last week suggested that the scale of economic slowdown in Poland is more significant and our forecast from the start of January (GDP growth by 2% in 2009) was too optimistic. From the point of the view of the monetary policy this is an argument for further, decisive interest rate cuts. This is why we expect that similarly as in December the Council is going to reduce rates by 75 bp. The only factor, which may stop the central bankers from such substantial move, is the continuation of the zloty weakening. Although, according to the results of Parkiet survey bank analysts say the Council should cut interest rates by 75 bp, the market consensus points to 50 bp.
We are facing (almost) continuous zloty depreciation and actually it is hard to say, whether the EURPLN rate reaches 4.50 or 4.60 level soon under influence of negative news. |
In our view this will not depend on the scale of reduction of interest rates, as the interest rate disparity is of low importance amid present exchange rate volatility. Although the trend seems to be in one direction only, it is worth to notice the technical analysis points to relative weakness of the Polish currency and narrowing room for further depreciation. At the same time, there is still room for yields decline on the interest rate market on poor data from the economy and official rates reductions. This considers especially the short end of the yield curve, while longer end may be soon under pressure of possible budget problems.
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Download: Weekly economic update 26 January - 1 February 2009
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19 - 25 January 2009
| Last week the zloty remained highly volatile with EURPLN and USDPLN breaking important resistance levels while clear risk in risk appetite towards the end of the week brought about only a temporary and partly recovery of the domestic currency. What is important, the zloty performance was weaker than other currencies in the region, which suggests that the problem of option, specific for the Polish market, still plays a negative role. This indicates, along with deteriorating picture of prospects for the Polish economy, that the zloty will remain under pressure and next week one cannot exclude EURPLN will test 4.30, although unsuccessfully in our view. The local interest rate market clearly strengthened last week due to mounting expectations for a decisive rate cuts by the MPC after last bunch of domestic macro data and more and more dovish comments from rate-setters. In case of bonds, a positive role was also played by lowered credit risk, reflected in narrowing of asset swap spread. |
With large dynamics of event in the markets and economy, the minutes of MPC meeting in December due for publication this week are not likely to alter assessment of monetary policy prospects. Numerous data releases this week are likely to be more important. Particular attention should be paid to labour market statistics on Monday and output figures on Tuesday (the importance of the latter numbers was explicitly stressed by prof. Jan Czekaj, one of rate-setters, apart from NBP governor, who are key for outcome of MPC votes). Of course, there will be also crucial events abroad.
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Download: Weekly economic update 19 - 25 January 2009
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12 - 18 January 2009
| The data published in the past few weeks, both abroad and locally, suggest that economic slowdown in next quarters will be significant and at the same time inflation outlook should improve considerably. This is important for assessment of central banks policy, including the Polish MPC, which trimmed rates by 75bps before Christmas. Last week, rates were cut by the Bank of England and the next week should bring a rate cut in the euro zone. The ECB meeting will be the key market driver this week, apart from some next major data in the euro zone and the US. Locally the market will focus on December’s CPI figures and balance of payments for November. The latter should show, according to our forecasts, a clear slump in export and import growth rates in reaction to weakening in domestic demand. |
The C/A deficit in November was probably narrower than in previous months, but the cumulated 12M C/A gap will increase above 5.5% of GDP due to an effect of low base a year ago. Monetary statistics usually do not have impact on the market. This time their interpretation will be additionally more difficult due to large influence of the zloty depreciation in the ending of 2008 on zloty-value of loans and deposits denominated in foreign currency.
Download: Weekly economic update 12 - 18 January 2009
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15 - 21 December 2008
Last week saw significant movements in financial markets. The zloty considerably weakened against the euro and gained versus the dollar amid significant rise in EURUSD. The local debt market experienced clear correction of earlier rapid drop in yields, despite further intensification of expectations for rate cuts by the MPC – rising probability that the MPC will decide to trim rates by 50bps in December.Domestic data released on Friday had no impact on the market.
Abroad we saw rise in risk aversion after Thursday’s rejection by the US Senate of the rescue plan for automakers, but shortly later there was a breath of optimism thanks to better than expected data from the US - retail sales and Michigan index showed that rapid fall in oil prices positively affected consumers. |
This week we will get a large set of important domestic data, which will help to assess better prospects for MPC policy. There will be also crucial events abroad with attention focused on the Tuesday’s FOMC meeting.
Download: Weekly economic update 15 - 21 December 2008
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8 - 14 December 2008
| Last week the government approved amendment to budget bill, lowering GDP forecast for 2009 from 4.8% to 3.7%. Government also presented anti-crisis package worth PLN91.3bn, however thus far there are little information about practical aspects of its implementation. Recently, zloty saw slight weakening. There was also further significant fall in market interest rates under influence of dovish comments of MPC members and situation in core debt markets. EBC cut main interest rates by 75 bp and signaled further policy easing is in the pipeline due to lower forecasts of GDP and inflation. Bank of England trimmed interest rates by 100 bp and Riksbank but rates by 175 bp. Weaker than expected foreign data and Fed’s announcement about purchase of US Treasuries triggered further strengthening in core debt markets. Domestic perspectives of inflation and interest rates are positively influenced by signals from Energy Regulatory Office about little size of energy price hikes next year and possible return to full price regulation in energy market. |
Ministry of Finance’s inflation forecast for November remained without impact on the market, as it showed a decline in CPI to 3.8%, in line with market consensus. PMI manufacturing index was a negative surprise again, although it had little impact on the market. FRA market is already pricing in a reduction in reference rate below 4%. Our forecast assumes 4.5%, however after ECB meeting we see a downward risk for this assumption. Moreover, expectations for December cut with sizeable risk of 50 bp move may keep market interest rates at low levels. This week, the local financial market will be still affected by changing global risk aversion. In Poland, there will be release of balance of payments data (we expect a rise in cumulated 12M deficit to 5.2% of GDP, amid decrease in trade deficit), and monetary statistics.
Download: Weekly economic update 8 - 14 December 2008
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1 - 7 December 2008
| The beginning of last week was marked by improvement in moods on the global market and decrease in risk aversion amid announcement of measures supporting the US economy and information about probable nominations for economic positions by Barack Obama. As a result of drop in risk aversion, there was rebound in stock markets, weakening of the dollar and strengthening of the zloty. In the second part of the week, with lower market activity related to long weekend in the US, concerns about global economic slowdown prevailed, which led to rebound of the dollar against the euro. The zloty was gaining against major currencies for the whole week and was not negatively affected by the rate cut delivered by the MPC. The Council decided to shift from neutral to easing bias and trimmed rates by 25bps. The official statement of the Council indicated that next rate cuts are only a matter of time. We expect that the next move will take place in December. The strengthening in the core debt markets and expectations for outcome of the MPC meeting led further significant fall in yields of domestic bonds across the curve. |
FRA market prices in further rate cuts of at least 150bps while we expect 125bps in 12 months (the reference rate down to 4.5%). However, we predict that further strengthening in the local debt market may take place when situation in the global markets allows for decrease in risk premium. This week the Polish financial market will remain under influence of changes in risk aversion, depending on major data release in the euro zone (PMI) and the US (ISM and the non-farm payrolls report) as well as on decisions of the ECB and the Bank of England. Locally, at the beginning of the week we will get the PMI manufacturing and the FinMin’s inflation forecast for November. The FinMin will also held the first auction of bonds since October (at the same time the last one this year), which will be a test for investors’ attitude to Polish assets.
Download: Weekly economic update 1 - 7 December 2008
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24 - 30 November 2008
Local macro data for October released last week (output, CPI, wages and employment) confirmed economic slowdown, although on a moderate scale so far. Data due for release his week (retail sales, unemployment, GDP) should be in similar tone. However, one should be aware that impact of the global crisis on Poland will lagged, and only data for the next months and quarters will show the real scale of damages in the Polish economy. In face of the
growing risks for domestic economic growth and improving local inflation outlook amid strong disinflationary tendencies globally, the MPC is likely to change its informal policy bias to easing from neutral at this week’s meeting. |
However, we think the first rate cut is not going to be delivered before the end of this year (before the MPC makes sure about scale of slowdown), but depending on upcoming data it could be larger move than 25bps. Abroad we will see many data releases in the first part of the week, mainly in the US, and the market could be volatile. At the start of the week, the European Commission will reveal a stimulation package for the economy.
Download: Weekly economic update 24 - 30 November 2008
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17 - 23 November 2008
| The Polish financial market still remains mainly under influence of changes in moods in the global markets. At the start of the week there was an increase in risk aversion amid small liquidity during the long weekend, which led to clear weakening of the zloty and domestic bonds, though in the second part of the week there was a partial recovery, which was supported by bounce back in the world stock markets ahead of the weekend G20 meeting. The domestic data on inflation and balance of payments released in the past week were in line with market expectations and did not have influence on the zloty and local bond prices as well as on our expectations of monetary policy prospects – we still expect a fall of NBP interest rates by 100 bp next year. |
This week we will get next domestic data (output, wages, employment, business climate indicators), which will allow to better asses the scale of weakening of the Polish economy (and also the probability of possibly sooner and deeper interest rate cuts by the MPC), though they will not fully reflect the effects of intensification of the global crisis. The Polish market will be still be mostly under influence of changes in the moods in the global markets and the moods will depend on reaction to results of G20 meeting and many data releases abroad scheduled for this week.
Download: Weekly economic update 17 - 23 November 2008
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10 - 16 November 2008
| The beginning of the past week was marked by increase in risk appetite. After news about Barack Obama’s win in US presidential election, there was a short-lived positive reaction of the market. However, much weaker than expected macro data and weak earnings reports from some companies in the euro zone and the US increased concerns about conditions of the major economies and negatively affected the stock markets. At the same, the dollar gained in the international markets and the zloty weakened. Investors’ moods were not comforted by decisions of several central banks in Europe to lower interest rates. With aggressive rate cuts by the Bank of England and the SNB, the ECB move by 50bp was disappointing and led to weakening of the euro versus the dollar. The FinMin’s inflation forecast for October was consistent with market forecasts and did not influence the local interest rate market. Domestic bond yields dropped with limited liquidity in the market and FRA and IRS rates fell amid dovish comments from the MPC. The NBP carried out the first repo operation in PLN with maturity of 3 months and announced an agreement with the SNB enabling to provide Polish banks with liquidity in CHF. |
The actions should lead to gradual improvement in conditions on the domestic money market.
The positive impact of the news about the NBP agreement with the SNB on the zloty was offset by news about downgrade in Moody’s rating for Hungary to A3 with negative outlook. The beginning of this week in the Polish markets should be calm due to market holiday in the US and Poland on Tuesday. Later in the week, we will get the first domestic macro figures due for release in November. We expect the figures will show deeper fall in the headline inflation rate for October than the market expects and rise in the 12M cumulated C/A gap in relation to 5.2% of GDP after September. The data may have negative impact on the zloty and positive for the interest rate market. However, the main driver for the Polish market will remain developments in the global market, which will depend on next macro data releases and a number of comments from the ECB and Fed officials.
Download: Weekly economic update 10 - 16 November 2008
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2 - 9 November 2008
| While the situation in money markets overseas and in the Western Europe seems to be gradually stabilising, which is reflected by slight decrease in money market rates, world stock markets are still in panic mode amid high risk aversion and recession fears. Emerging markets saw a dramatic deterioration in moods and sell-off last week. Even though bad news were related to neighbouring countries, including Hungary and Ukraine, Polish currency and bonds suffered heavily from the investors’ flee from the region. In the near term, it will be moods abroad and information from neighbouring markets that will be key determinants of zloty and bonds’ behaviour. In situation when market is driven by emotions, it is hard to predict exchange rate movements, especially in the short run. Option market is pricing in further sharp increase in zloty volatility, which shows that investors are afraid of continuing depreciation. |
In case of more negative news from emerging markets, such scenario is possible, and level 4.0 versus euro may be tested again. If this level is breached, the next important threshold is 4.13. A factor that may potentially help in improvement of attitude towards Polish assets is the government’s decision regarding agenda of euro zone adoption. The question is whether confirmation of government’s determination will be enough to improve sentiment or if the market will rather wait for signal that cooperation with opposition is possible. The MPC decision on Wednesday will be in our opinion obscured by market situation, especially as we expect no change in interest rates. In our view, the MPC could change the bias to neutral in order to trim speculation about possible rate hike to defend the zloty.
Download: Weekly economic update 2 - 9 November 2008
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27 October – 2 November 2008
| While the situation in money markets overseas and in the Western Europe seems to be gradually stabilising, which is reflected by slight decrease in money market rates, world stock markets are still in panic mode amid high risk aversion and recession fears. Emerging markets saw a dramatic deterioration in moods and sell-off last week. Even though bad news were related to neighbouring countries, including Hungary and Ukraine, Polish currency and bonds suffered heavily from the investors’ flee from the region. In the near term, it will be moods abroad and information from neighbouring markets that will be key determinants of zloty and bonds’ behaviour. In situation when market is driven by emotions, it is hard to predict exchange rate movements, especially in the short run. Option market is pricing in further sharp increase in zloty volatility, which shows that investors are afraid of continuing depreciation. |
In case of more negative news from emerging markets, such scenario is possible, and level 4.0 versus euro may be tested again. If this level is breached, the next important threshold is 4.13. A factor that may potentially help in improvement of attitude towards Polish assets is the government’s decision regarding agenda of euro zone adoption. The question is whether confirmation of government’s determination will be enough to improve sentiment or if the market will rather wait for signal that cooperation with opposition is possible. The MPC decision on Wednesday will be in our opinion obscured by market situation, especially as we expect no change in interest rates. In our view, the MPC could change the bias to neutral in order to trim speculation about possible rate hike to defend the zloty.
Download: Weekly economic update 27 October – 2 November 2008
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20 - 26 October 2008
Despite governments and central banks announced actions aimed at increasing liquidity and restoration of confidence in the banking sectors, situation in the financial markets is still far from normality and investors moods remain very vulnerable to any negative news. Attention of the markets is focusing to a growing extent on consideration of possible consequences of the current situation in the markets for the global economy and economic growth in the longer term. The key gauge of market sentiment in the global markets will remain situation on the Wall Street. Moods in the region are additionally negatively affected by news about problems of Hungary and Ukraine and concerns about contagion effect. Fundamentals of the Polish economy are stronger than in case of Hungary and economic slowdown will be much less considerable than in the euro zone.
This should support the zloty in the medium term, although currently the possible next negative news from Hungary and overall pessimism in the markets are risk factors for the zloty. |
On the other hand, a positive factor for the Polish currency and local bonds would be official approval of the schedule of the euro zone entry. According to finance minister, approval of the schedule by the Prime Minister will take place this week and the Prime Minister is likely to decide about publication of the document in the near term. The decision would improve sentiment towards Poland and make the domestic financial market more resistant to negative moods in the region. As regards moods in the global markets, the key focus of attention will be comments from the ECB and Fed and possible indications that more rate cuts are in the pipeline. Data releases calendar abroad is light.
Download: Weekly economic update 20 - 26 October 2008
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13 - 19 October 2008
| Improvement in market sentiment after approval of the rescue package for the financial sector by the US Congress was very short-lived and the last week began again with increased risk aversion, among others due to news about problems of next financial institutions in Europe. Temporary improvement in moods took place also after rate cut by the Bank of Australia and then after coordinated rate cut by the world’s major central banks. Risk aversion and unwinding of carry trade positions as well as negative news from Hungary led to substantial weakening of the zloty. The situation in Hungary also contributed to large jump in Polish bond yields. |
There was also increase in expectations of rate cuts, in our view not justified in face of the prospects for swift euro adoption. Incoming data from the economy (against the market consensus we expect weaker fall in inflation and slightly higher wage and industrial production growth) should have lower importance for the market in face of the current turmoil. The key factor for market sentiment will be outcome of the G7 meeting over the weekend, where solutions for the crisis will be discussed.
Download: Weekly economic update 13-19 October 2008
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6 - 12 October 2008
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Surprising decision of the House of Representatives to reject the Paulson’s rescue plan for the US financial sector last Monday triggered a surge in risk aversion, which resulted in a collapse in stock markets, strengthening in bond markets, strong rise in money market rates and weakening in currencies in the region. Uncertainty was additionally fuelled by information about financial problems of European banks. Work on the rescue package have been resumed in the US Congress though, and on Wednesday the Senate approved amended plan, including among others higher protection for depositors and higher tax rebates. On Friday, the plan was accepted by the House of Representatives. Green light for the US government’s takeover of “toxic assets” improved investors’ sentiment only for a while, and this week began with increased risk aversion among other due to information about problems of next financial institutions in Europe. One should take into account that uncertainty and risk aversion will remain at elevated levels for some time.Financial market players are increasingly concerned that effects of the plan may be insufficient to prevent the US economy from recession and financial market from further distress.
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The key issue in the near term will be to restore market liquidity and “defreezing” money markets that stalled in recent days. While the main effect of the Paulson’s plan was supposed to be restoration of confidence in the markets, the wave of criticism it has suffered recently and problems with its approval in the Congress may reduce its positive impact on market moods. In the local market, an important event will be auction of 10Y bonds. Demand for the government securities should be quite high, as financial institutions are seeking relatively safe investments. Possibly, the problem of financial market crisis will be tackled by politicians. On Friday the president Lech Kaczyński said he may call a meeting of the Cabinet Council (a panel of all members of the government and the president) to debate risks for the Polish economy.
Download: Weekly economic update 6-12 October 2008
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15 - 21 September 2008
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The end of last week was dominated by a discussion about PM Tusk’s declaration that the government would like Poland to enter the euro zone in 2011. Though we believe that chances for this scenario are insignificant, but strong government’s declaration might mean that 2012-13 would become more likely than subsequent dates. On Tuesday, government is about to meet with MPC, and surely accession to the euro zone as well as budget for 2009 will be one of the main points on the agenda. So far according to NBP the government has not consulted this issue with the central bank. It is worth to observe the comments of both sides after the meeting. Some MPC members (Filar, Wojtyna) have already suggested that faster path to the euro would require more restrictive monetary policy.
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This week, the key attention of the domestic market will be focused on new data from August. While the publication at the start of the week (CPI above 5%, high wage growth) should strengthen expectations of hikes, Thursday data on low output growth and PPI might neutralize that effect. Abroad, the list of publications will be abundant as well. All eyes will be on the FOMC meeting on Tuesday evening. The attention will be focused also on numerous data on economic activity in the US and American house market, and on inflation indicators as well.
Download: Weekly economic update 15-21 September 2008
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8 - 14 September 2008
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In line with our expectations, the zloty was testing 3.36 level at the start of last week. Initially it failed to break this threshold, however in the second part of the week, there was a significant weakening of currencies in the region, mainly due to dollar appreciation against euro (EURUSD clearly below 1.43). The EURPLN rate rose significantly to ca. 3.45. There was a strengthening in interest rates market, among others due to situation on core markets. Local money market and debt market did not react to publication of the Ministry of Finance’s inflation forecast that proved
to be consistent with market consensus (5.0%YoY) and slightly lower than our prediction. Comments of MPC members revealed split opinions within a rate-setting panel. Hawkish central bankers pointed to a need of further rate hikes, while dovish Council members did not rule out possibility of rate reductions in Poland next year, although they said it depends on inflation decline and clear weakening of economic growth. In our view, it is too early to expect interest rate cuts that are currently being priced-in by the market. Level of CPI inflation and upward path of core inflation, together with elevated wage growth, create a risk for inflation. Moreover, conclusion of monetary tightening cycle is not supported by current trend on the FX market.
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This week, there are few important local data releases in the agenda. At the end of the week, we will see balance of payments data for July. We predict a slight drop in current account balance amid significant deceleration in export and import growth. We also expect a decline in current account balance as compared to June, although cumulative deficit in relation to GDP will remain at 4.5% level. For the debt market, an important gauge of sentiment may be auction of 20Y bonds on Wednesday, particularly in the context of very good results of 5Y bonds tender last week. Calendar of economic data releases abroad is also quite thin. It is worth to note the OPEC meeting on Tuesday, which could drive the oil market and the dollar. We maintain opinion that current levels of exchange rates on the Polish market encourage to buying the zloty, although a risk factor for this scenario is further dollar appreciation against euro.
Download: Weekly economic update 8-14 September 2008
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1 - 7 September 2008
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As we expected, the last week was marked by depreciation of the zloty and rise in market interest rates. The zloty weakened despite no change in EURUSD and the fact that outcome of the MPC meeting proved more hawkish than expected by the market. As it was widely predicted, the MPC left rates on hold, but tone of the post-meeting official statement and comments from rate-setter proved more hawkish than expected by the market. In fact, as we have indicated, overall message from the Council did not differ much as compared to the previous month. Door for more monetary tightening are still open. We expect that in August the CPI inflation rose to around 5%, net inflation to around 4% and the CPI less food and energy prices to above 2.5%, while wage growth remained at two-digit level, which should persuade the Council to tighten monetary policy again. An encouraging factor for some additional tightening were stronger than expected GDP numbers for Q2.
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However, we think that more and more numerous indications of economic slowdown in the next quarters (last week brought slightly weaker than predicted retail sales for July, fall in consumer confidence indices for August and confirmation of weakening in labour demand growth) will not enable to convince rate-setters to more than one hike this year.
This week we expect slight recovery of the zloty, although EURPLN may temporarily test again the level of 3.36, which was shortly broke on Friday. The domestic currency should be supported by upward correction in EURUSD expected by us. The local interest rate market will be influenced by release of the FinMin’s inflation forecast for August and performance of the core debt markets amid many crucial events scheduled abroad.
Download: Weekly economic update 1-7 September 2008
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25 - 31 August 2008
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Last week passed under the sign of slight zloty rebound against main currencies amid correction in EURUSD and surge in oil prices. Bonds continued strengthening trend since the start of the week despite higher than expected data about wages and employment. Data about industrial output and PPI were much lower than predicted and contributed to further strengthening in interest rate market. Net inflation increased in line with market consensus to 3.5%YoY and MPC minutes showed that the hawkish camp in the Council opted for interest rate hike already in July and it will probably not change at the next meeting.
Main event of the week will be the MPC meeting that will conclude with no change in interest rates. The statement after the meeting may include references to the exchange rate (substantial weakening since the last meeting) and to a scale of economic slowdown.
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An important issue for the MPC may be a change in expectations concerning monetary policy perspectives in the euro zone, as well as a drop in oil prices. However, in our view the MPC statement will not be less hawkish than the previous one. Moreover, we expect that retail sales data will show higher growth than predicted by the market, which should prevent further strengthening on the interest rate market. A slight depreciation of the zloty is possible with 3.34 versus euro as a resistance level. At the end of the week, the CSO will release GDP data for Q2 that are likely to show slight economic slowdown as compared to Q1.
Download: Weekly economic update 25- 31 August 2008
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18 - 24 August 2008
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In the past week the zloty depreciation trend was continued and the EURPLN rate as we expected exceeded 3.30, while the bond market experienced yields decline. The weakening of the domestic currency resulted mostly from the strengthening of the dollar in the international markets. It was gaining as result of concerns the weakening of other economies than US and of further drop in commodities’ prices. Oil prices dropped to 110$ per barrel.
Data about June’s balance of payments disappointed, as trade deficit increased to €1.7bn and cumulated 12-month current account deficit rose to 4.5% of GDP. Inflation data were in line with median market forecast and similarly to current account figures had negligible impact on the financial market. Higher impact had dovish comments of the Ministry of Finance about estimates of inflation in August not exceeding 5%.
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We predict further weakening of the domestic currency amid deceleration in dollar appreciation. We also do not expect further fall in yields on the debt market because of publication of new local data for July. Industrial output and PPI will be in our opinion higher than market consensus and core inflation will remain at elevated levels. Even though wage growth may be lower than predicted by the market, it will remain very high, strengthening inflationary pressure. We still expect a slight slowdown in employment growth. Minutes of the MPC meeting in June should have no significant impact on the local financial market. High number of important publications will be released abroad and they may impact the relation between the dollar and euro and core debt markets.
Download: Weekly economic update 18 - 24 August 2008
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11 - 17 August 2008
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Interest rate cut in the Czech Republic and dollar appreciation after the ECB meeting suggesting no soon interest rate hikes in the euro zone contributed to weakening of currencies in our region last week, including the zloty. At the same time, bond market strengthened, which was favoured by situation on core debt markets and expectations that CNB’s rate cut may herald near end of tightening cycle in other countries in the region.
After short break in data releases, this week markets will focus on monthly macroeconomic indicators again. The most important will be inflation data on Wednesday, which we predict to have risen to 4.7% in July, slightly below market consensus and FinMin’s forecast. One should pay attention to a scale of food prices deflation, as it may hint on what will be the impact of this year’s dry weather on domestic inflation rate. Also, the MPC members’ comments that may follow the CPI release may be important for the market.
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Tuesday’s data about balance of payments should favour continuation of zloty correction, showing a rise in current account deficit despite faster export growth than in May.
Abroad, inflation data will be also in focus this week and may affect expectations concerning monetary policy perspectives in the US and euro zone. Besides, there will be numerous important figures on economic activity (among others, industrial output and GDP in the euro zone, output and retail sales in the US).
Download: Weekly economic update 11 - 17 August 2008
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4 - 10 August 2008
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Although last week the zloty reached new high against the euro, EURPLN did not managed to break 3.20. There were a few corrections, but not on a large scale and maximum level of EURPLN during the week was 3.23. At the end of the week the zloty was at similar level versus the euro as a week earlier. At the same time, the domestic currency weakened to the dollar amid the greenback’s strengthening in the international markets. We still think that potential for the zloty strengthening is running low and we expect more significant correction. An impulse for that may be a rate hike in the Czech Republic suggested in recent comment from Czech central bankers. Such a decision could weaken the zloty. Tone of MPC statement after its meeting last week and fresh comments from Polish central bankers showed that prospects for domestic monetary policy abroad are different than in Poland’s southern neighbours.
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The MPC again included informal restrictive bias in the official statement. However, one should note that also a few new dovish elements appeared in the document, which lowers risk of more radical steps than in our scenario of rise in the reference rate to 6.25-6.5% in September and/or October. Arguments for further tightening will be increase in inflation and inflation expectations, which pose a threat of the second-round effects. Therefore, we think that fall in domestic yield curve continued last week may soon be reversed at least to some extent. This week Polish bonds may be negatively affected by comments from the ECB, which in our view remains in hawkish mood. After a series of quite strong data from the US, the FOMC is also unlikely to be dovish. This may lead to increase in yields on the core markets and thus harm the domestic debt market.
Download: Weekly economic update 4-10 August 2008
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27 July– 3 August 2008
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At the beginning of last week there was significant correction of the zloty driven by fall in EURUSD, quite dovish comments from MPC members and suggestion by governor of the Czech central bank about a possibility of a rate hike already at the bank’s meeting on August 7, which weakened currencies in the region. In the last two days of the week the zloty recovered, erased earlier losses and reached new high against the euro, but EURPLN failed to break 3.20. We think that also this week the zloty will not strengthened below that level for longer and one should rather wait for another wave of correction. In our view the zloty may be negatively affected by rather dovish message after the MPC meeting this week.
Significant moves in the FX market and in the core debt markets translated into large volatility in the local debt market. At the end of the week yields were slightly lower than at a week earlier. Overall influence of the domestic macro data released last week was neutral for the zloty and bonds.
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An effect of slightly higher than expected net inflation was offset by lower than predicted retail sales. The data has not changed our assessment of monetary policy prospects. Recent comments from MPC members confirmed our view that likelihood of a rate hike in July is close to zero and further tightening may only take place in autumn.
Apart from the MPC meeting (with no uncertainty regarding decision on rates, the market will wait for official statement and central bankers’ comments) key events for the Polish market this week include release of the FinMin’s inflation estimate for July and many major data releases abroad. Moods in the stock markets and performance of crude oil prices will also be important for the FX and debt markets.
Download: Weekly economic update 27 July– 3 August 2008
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20 – 26 July 2008
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W tym tygodniu w raporcie:
- What’s hot this week - Last data releases before the MPC meeting
- Economy last week - Dovish data, except for wages
- Quote of the week - Strong zloty and possible slowdown worrying MPC
- Market monitor
Among data released last week in fact only acceleration in wage growth in enterprises sector to 12%YoY was a “hawkish” surprise, while other publications were either neutral (CPI) or lower than forecast (employment, industrial output, export, PPI), fitting well in a picture of Polish economy undergoing a gradual slowdown. Those data will be arguments for the Monetary Policy Council for several months of observation of situation and no interest rate hikes in the summer period. Nevertheless, the Council will remain vigilant, as definitely accelerating wage growth could be a worrying signal.
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This week will bring about lower number of publications either local and on international markets. The most important domestic data will be those about retail sales growth. They may be slightly negative for bonds, as we predict higher sales growth than the market (thanks to solid rise in revenues). Core inflation data, that are likely to show slight increase in most of measures, should be quite neutral for market sentiment, as well as business climate indicators and minutes of June MPC meeting. Abroad, the housing market should be the focus of attention in the US. Other data of note in a relatively quiet week include durable goods for June and the final reading for July’s Michigan Sentiment survey. Amid a light data schedule, markets will be keeping a close eye on half year corporate earnings reports/trading statements and the performance of stock markets, as well as developments on oil prices.
Download: Weekly economic update 21 – 27 July 2008
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14 – 20 July 2008
In this week's report:
- What’s hot this week - Heavy data calendar in Poland and abroad
- Economy last week - Slovakia allowed to join euro zone in 2009
- Quote of the week - Strong zloty may delay rate hikes?
- Market monitor
This week we will see a set of data of key importance in assessment of inflation outlook and future decisions of the Monetary Policy Council. The most important will be data about CPI, wages and employment, due for release on Tuesday. After two-days break, also industrial output data may have impact on the market, as they will hint whether a long-awaited slowdown has already started materialising. Data about balance of payments will probably show clear slowdown in export growth and deepening of current account gap in May, which may stop the zloty from going down South, at least for a while. |
Especially if data about inflation and wages will not be higher than predicted by the market, which will confirm expectations for a pause in interest rate hikes. Calendar of economic data releases abroad is also heavy this week. The market will pay close attention to data about inflation in the euro zone and in the US, as well as production figures for both areas, business climate indicators and news from the US housing market. With a host of companies due to report half year earnings, the performance of stock markets will be closely watched, as will the Fed Chairman Bernanke’s speeches on Tuesday and Wednesday.
Download: Weekly economic update 14 – 20 July 2008
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7 – 13 July 2008
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In the first part of last week, with rise in EURUSD, the zloty was table against the euro and reached the strongest level to the dollar since 1993. Later in the week, EURPLN fell below historical low of 3.3407 from June 2001. However, it did not happen as a consequence of strengthening expectations for more interest rate hikes by the ECB, which could have increased room for monetary tightening in Poland. Actually, the comment after the ECB meeting was less hawkish than expected by the market, and the US data were better than some market participants feared, and in effect there was a significant weakening of the euro against the dollar in the international markets.
This led to zloty appreciation against the euro and simultaneous weakening versus the dollar. Numerous comments from MPC members last week had neutral impact on the Polish market. They have not changed our view on monetary policy prospects. We still believe there is substantial risk of further rise in the reference rate to 6.25-6.5%. Likely months for further rate hikes will be September (after Q2 GDP data and August inflation at ca. 5%) and/or October (next inflation projection).
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After falling below the historical low level, EURPLN may go into direction of 3.30 (on Friday it tell below 3.32). The zloty may be positively influenced by the Eurogroup’s final decision on Slovakia’s entry to the euro zone and the Slovak crown conversion rate to the euro. We lower expected range for EURPLN to 3.28-3.38 and for USDPLN to 2.08-2.18. Among data from the euro zone and US due for release this week, the most important will be preliminary Michigan index for July.
Changes in risk aversion and moods on stock markets will be also important for the local financial market. The meeting of the Bank of England will be important for the British pound. In our view, amid expected rise in inflation in the nearest months and at simultaneously strengthening signs of deep economic slowdown the BoE will not decide to lift main interest rates this year.
Download: Weekly economic update 7 – 13 July 2008
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16 – 22 June 2008
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In the international markets there was a significant rise in bond yields and the largest weekly strengthening of the dollar in 3 years. As compared to the market moves abroad, volatility in the Polish market was moderate as investors waited for CPI inflation figures.
The data showed that CPI inflation in May rose to 4.4%YoY from 4% in April, in line with our forecast and slightly above the FinMin’s estimate and market consensus of 4.3%. At the same time, a structure of price growth was slightly different from what we expected, which lowered our estimate of net inflation in May to 3.3% from 3.6%.
Money supply growth was slightly higher than forecast and remained at high level of 15%YoY. All in all, we have not changed our expectations regarding monetary policy prospects. We predict a rate hike and see significant risk of further tightening later in the year.
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This week will be busy in terms of major data releases both locally and internationally. While according to our forecasts domestic output and PPI figures should be lower than the market consensus, which may temporarily strengthen the interest rate market, the other data releases and accompanying them possible comments from the MPC are likely to confirm high probability of the rate hike in June and risk of further tightening later on.
The international FX markets will be under influence of result of the referendum in Ireland and next data from abroad.
Download: Weekly economic update 16 – 22 June 2008
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9 – 15 June 2008
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Last week, the only important event scheduled in the Polish financial market was publication of the FinMin’s estimate of CPI inflation in May. The official inflation figures will be released by the stats office on Friday, 13. The ministry estimates that the headline inflation rate in May increased to 4.3% after a monthly price growth of 0.7%. Our estimate of inflation and the median of market forecasts are at 4.4%. In a comments to the FinMin’s estimate a few MPC members said that the estimate is consistent with NBP internal short-term forecasts and does not change assessment of the inflation outlook and monetary policy prospects. We think the Council is going to continue the monetary policy tightening and one should expect an interest rate hike already in June. What is more, according to some of Polish rate-setters, comments from the ECB president at the post-meeting press conference, suggesting a rate hike in the euro zone as soon as in July, create some additional room for rate hikes in Poland. In our view this increases risk of further rate hikes after the move in June expected by us for a long time.
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Apart from local events, we will also get next portion of important data from abroad this week. The key focus of attention will be on retail sales and inflation figures from the US. Besides, market participants will pay much attention to Euro2008 that will last from 7 to 29 June. Analysis of statistical data indicates that Polish national team has low chances for a success, but there are people rather than statistics playing on a pitch and everything can happen.
Download: Weekly economic update 9 – 15 June 2008
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5 September |
