Weekly Focus Poland
2Q17 GDP arrived at 3.8% y/y and beginning of 3Q showed robust growth in industry and retail sales, albeit below market expectations. This week’s unemployment rate is due Thursday. However, FX and bond market to stay focused on Yellen and Draghi speeches in Jackson Hole (due Friday). PMIs in Europe also due this week.
August 24: Unemployment rate expected to drop further (our forecast at 6.9% vs. consensus at 7.0%), supported by seasonal factors. Labor market conditions keep improving. Employment has been rising at a robust pace and the nominal wage keeps growing. The unemployment rate is at the historically low level of 7.1%. In July, we expect a further drop in the unemployment rate, as seasonal factors should support such development. All in all, a strong labor market is positive for the private consumption that should remain the pillar of growth throughout the year.
Risk-off mode behind yield movement The yield curve moved down throughout the last week and the 10Y yield in Poland dropped from 3.40% to 3.31% at the beginning of this week. The downward move was also present on core markets. The move was most likely a response to risk-off mode after the terrorist attacks in Spain. This week, in the absence of major macroeconomic releases, investors will remain focused on the PMIs in Europe and Yellen’s and Draghi’s speeches in Jackson Hole. It seems that slowly rising inflation remains a concern amid robust economic performance (relatively strong growth and improving labor market). The tone of the speeches may thus set expectations on the further development of monetary policy in the US (whether to expect another rate hike this year) and the Eurozone (pace of reduction in the ECB’s purchases). We thus expect the Polish yield curve to be driven by international sentiment this week.
Zloty swings The zloty was relatively weak at the beginning of the previous week amid low liquidity due to a national holiday in Poland. Domestic data, robust 2Q17 GDP growth in particular, was positive for the Polish currency, pushing the EURPLN temporarily toward 4.25. The end of the week and risk-off mode after the attacks in Spain weakened the zloty back to 4.27 vs. the EUR. This week, global sentiment will be in the driving seat again as no important domestic releases are scheduled.