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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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