Poland Weekly Focus | Market turmoil continues
Real economy data for October to show performance of economy at start of 4Q21. Industrial production surprised to upside, while retail sales should show solid dynamics. Market turmoil continues, with 10Y yield going up to 3.3% and zloty hitting 12-year low.
November 23 | Retail sales to remain solid. We expect retail sales to arrive at 11.9% y/y in October (5.0% y/y in real terms), slightly below the market consensus of 12.5% y/y. While labor market statistics remained solid in October, sentiment continued to deteriorate, affected by the worsening pandemic situation and surging inflation. Current consumer sentiment (BWUK) dropped for two consecutive months and stands at -23.3 in November, which is the lowest since February 2021. On the other hand, the low base from last year (due to restrictions) could be positive for the figure.
Bond market drivers | 10Y yield moved further up. Over the course of the week, the long end of the Polish curve increased by another 35bp to around 3.3%, which is the highest for more than three years. The 10Y German Bund moved in the opposite direction, as the yield dropped by around 10bp to -0.35%. As a result, the spread against the 10Y Bund widened significantly to 360bp, the highest since February 2017. On the other hand, the 2Y Polish yield fluctuated between 2.8% and 2.9%. Last week, the National Bank of Poland purchased Treasuries and state-guaranteed papers worth just PLN 0.4bn, the least since the launch of the QE program. This week on Thursday (November 25), the MinFin will hold the second switch auction scheduled for this week.
FX market drivers | Zloty hits 12-year low. The Polish zloty extended its losses and hit 4.72 vs. the EUR around noon on Monday, which is a 12-year low. Both global and local factors are behind the zloty’s weakness. Following the sharp move of the zloty on Friday, Governor Glapinski said that the recent weakening of the PLN is mainly due to the visible strengthening of the US dollar. He added that rising infection rates across Europe and in Poland could also be negative for the PLN. He added that if changes in the exchange rate are driven by market factors, it should not be expected that the central bank will intervene.While the governor’s comments had limited impact on the exchange rate, following the comment of PM Morawiecki on Monday, the EURPLN returned to 4.69.