Poland Weekly Focus | Global factors to drive bond and FX market
Unemployment rate to ease to 5.8% in July. Bond and FX market to remain under influence of global and regional factors. National Bank of Hungary to deliver another 30bp hike at this week’s meeting. Investors to watch Jackson Hole symposium for hints on Fed’s tapering.
August 24 | Unemployment rate to marginally decrease. According to the initial estimate of the labor office, the unemployment rate dropped by 0.1pp to 5.8% in July, which would be the lowest since April 2020. We expect the initial reading to be confirmed. All in all, the situation on the labor market remains favorable, with wage and employment growth sustaining solid dynamics. The solid labor market should support the level of household spending in the coming months.
Bond market drivers | 10Y yield oscillating around 1.7%. Over the course of the week, the long end of the Polish curve remained broadly unchanged, as the 10Y yield fluctuated around 1.7%. The spread against the 10Y German Bund stabilized slightly below 220bp. At last week’s auction, the National Bank of Poland purchased only PLN 1.1bn in Treasuries and state-guaranteed papers – the lowest purchase since February 2021. On the one hand, lower purchases could reflect calm summer trading and limited upward pressure on the long end. On the other hand, they could be seen as the start of the tapering of asset purchases ahead of a possible hike in November. Given the recent upward surprise in headline inflation coupled with a swift economic recovery, we expect the NBP to deliver the first 15bp hike after the publication of the inflation and growth projection in November. Moreover, Poland has already covered almost 80% of this year’s borrowing needs after last week’s switch auction.
FX market drivers | EURPLN locked above 4.55. Global and local factors continue to affect the PLN, as the zloty maintains a weakening bias. Since the beginning of August, the stronger US dollar has weighed on regional currencies, with the exception of the Hungarian forint, which decoupled from its peers. While aggressive monetary tightening supports the forint, the dovish stance of the National Bank of Poland, coupled with ongoing conflicts with the EU and the US, as well as recent jitters within the government coalition are negative for the PLN. This week, the trend is unlikely to reverse, as the USD should stay strong.