Poland Weekly Focus | Did FX market overreact?
Bond and FX markets likely to respond to international developments in light of no important local macro releases. Spreads are likely to widen, while zloty could somewhat depreciate, as we see recent movement as overreaction. Real economy dataset for 3Q19 is complete and we see GDP growth at 4.0% y/y in 3Q19.
Real economy data implies GDP growth of 4.0% in 3Q19. With a complete set of data for 3Q19 available, our now-casting model suggests GDP growth of 4.0% y/y in 3Q19. The figure is most likely being downplayed by the sluggish performance of the industrial sector, while the weaker performance of retail sales also does not help. We continue to see FY19 GDP growth at 4.2%.
Bond market drivers | 10Y returns above 2%. Improved global sentiment shifted the long end of the curve up on core markets as well as in Poland. The 10Y German Bund went up by 5bp and closed the week marginally above -0.35%, the highest level since July 2019. Following core market development, the Polish 10Y yield increased by roughly 10bp and returned to above 2%. This week, in the light of no important local macro releases, the long end of the curve should follow the global story, with Brexit remaining the center of interest.
FX market drivers | Zloty keeps appreciating. The zloty strengthened further and continued its three-week appreciation trend. We think that the recent strong appreciation of the zloty could be seen as a market overreaction to positive news surrounding Brexit especially that any solution still needs to pass through the British Parliament.