Weekly Focus Poland
S&P left rating at BBB+ and stable outlook unchanged. Last week, industry slowed to 4.3% y/y in September, while retail sales growth accelerated to 8.3% y/y. Overall, robust monthly indicators suggest strong GDP growth in 3Q17. Unemployment rate is due Tuesday, but key event for FX and bond market this week is ECB meeting and expected announcement on downsizing of QE.
October 24: Unemployment rate to drop marginally to 6.9% Labor market conditions keep tightening. Employment and wages keep growing and the unemployment rate should drop further to 6.9% in September. So far, the accelerating nominal wage growth has not translated into demand pressure (core inflation at 1.0% y/y in September). However, expectations for monetary tightening will be rising.
October 26: Minutes from MPC meeting The MPC minutes will likely confirm that the majority supports Governor Glapinski’s view that’s stability of rates is the most likely scenario. However, some MPC members indicated recently that there may be a need to raise rates sooner than in 2019. Tightening of the labor market may finally become the trigger for the discussion on monetary tightening. However, we would not expect talks about possible rate hikes sooner than in 1H18.
Yields stable; ECB meeting ahead Over the last week, the long end of the curve has been relatively stable, with the spread vs. Bunds holding around 290bp. This week, the ECB meeting is the key event for the bond market, especially as the domestic macro calendar is empty. It is broadly expected that the ECB will announce the downsizing of its QE program as of January 2018. The open question is how long the purchases will last. If the market reads the ECB decision and statement as hawkish, we may see yields rising.
Zloty has stabilized around 4.24 vs. EUR The zloty has been holding close to 4.24 vs. the EUR recently. This week, global sentiment will be the key factor for the local currency development. The ECB is expected to announce the downsizing of its QE program as of January. Any changes in the USDEUR pair will be reflected in the EURPLN. While the zloty appreciated vs. the euro roughly 1.7% this month alone, the expected rate hike in the US and winding down of the QE program by the ECB are factors limiting the EURPLN's appreciation potential, in our view.