Weekly Focus Poland
Unemployment rate (due Tuesday) expected to fall to 7.1% in June. No other major releases scheduled (including on international markets). FX market remains under influence of domestic events (turmoil related to judiciary reforms). FOMC meeting scheduled for Wednesday should bring no surprises; FOMC should leave major decisions for September meeting.
July 25: Unemployment rate expected to fall to 7.1% in June. The unemployment rate should drop further to 7.1% in June, especially as seasonal factors support such development. As labor market conditions keep improving, we expect strong growth of private consumption throughout the year. Wage pressure, however, remains limited, keeping demand pressure low.
Yields drop following core markets In the aftermath of the ECB meeting, German yields dropped toward 0.5% last week after a relatively dovish ECB statement. The Polish bond market follows developments on the core markets, as the long end of the curve moved down at the beginning of this week. The impact of the ECB’s dovish tone was muted by increasing political tensions. The spread vs. Bunds widened slightly, yet it remains close to the long-term average of 280bp. Strong budget performance after June (surplus of PLN 5.9bn due to NBP profit) reduces this year financing needs. A lower bond supply in the coming months supports lower level of yields.
Zloty sensitive to domestic politics The zloty visibly weakened on Friday (more than 1% vs. the EUR) because of domestic political turmoil. Controversies surrounding legislation on the judiciary system resulted in tension with EU. On Monday morning, the presidential veto of the most controversial bills was zloty-positive and the EURPLN moved from Friday’s close at 4.26 to 4.24. As the domestic political pressure is likely to ease in the coming days, the zloty may return to being under the influence of international sentiment, especially as the FOMC meeting is due on Wednesday.