Poland Weekly Focus | Price pressure to drop in June
Flash inflation should drop further compared to previous month and land at 2.7% y/y in June. Manufacturing PMI expected to recover and move towards margin of 50 in June. Markets to closely watch pandemic as new cases remain in upward trend.
June 30 | Inflation to ease further in June. The flash inflation reading for June should point to further easing of inflationary pressure. We expect headline CPI to drop further, to 2.7% y/y (from 2.9% y/y in May), on the back of low oil prices and slowing growth of food prices. On the other hand, services prices remain in an upward trend and continue to push inflation up.
July 1 | Manufacturing PMI to increase in June. According to the market consensus, the manufacturing PMI should recover further and increase to 46.1 in June (from 40.6). Although the PMI points to recovery of economic activity from the historical lows reached in April, market sentiment remains subdued. The local sentiment indicator in manufacturing has recovered somewhat, but remains well below last year’s average. On the other hand, Eurozone PMIs surprised to the upside in June – could Polish data surprise to the upside as well?
Bond market drivers | Long end of curve stabilized. Over the course of the week, despite increased volatility on core markets, the 10Y Bund dropped sharply (by 10bp, towards -0.48%), while the long end of the LCY curve was stable at around 1.4%. As a result, the spread widened marginally to 185bp. This week, BGK is scheduled to hold the first out of three planned auctions in July. So far, the state-owned bank has issued papers worth PLN 42.bn in order to obtain funding for the government’s recovery program. Moreover, the MinFin should announce the planned supply for July and 3Q20, while the NBP should publish the schedule of QE operations to be held in July.
FX market drivers | EURPLN remains on weaker side of 4.45. In the first part of the week, the zloty remained mostly unchanged and did not benefit from better than expected retail sales data for May. However, in the second half of the week, on the back of increasing global risk-off mood, the zloty weakened and the EURPLN moved above 4.45. The first round of the presidential election brought no surprises