Emerging Markets Monthly: Weak European macro to keep PLN on weak side for now
|- Slow vaccinations and recovery fund disbursement amid continued lockdowns are becoming short-term but quite negative themes for Europe.
- For Eastern Europe, this generally also puts a damper on the prospects of a strong rebound in PLN over the coming 1-2 months.
- For PLN income, one could consider hedging via participating forwards on 6M+. For expenses, we recommend buying PLN via forwards.
There is a broad political view that the European recovery is lagging and slow vaccinations are (partly) to blame. For CEE, this likely also means we should see EUR/PLN at its currently elevated levels in the coming months. German DAX is relatedly a tad weaker (chart 1).
German politicians (Helge Braun) want to loosen up on the debt brake, France (Bruno Le Maire) is in the Financial Times, calling for speeding up the disbursement of funds related to the recovery fund. IMF just downgraded euro area 2021 growth from 5.1% to 4.1% as Germany's, Italy's and France's expected rebounds shift lower.
In Poland, the central bank (NBP) has also increased the focus on keeping PLN to the weak side vis-a-vis EUR. In that sense, the NBP is thus moving towards the Hungarian central bank's dovish approach. However, we also have difficulty seeing reasons for a desire by NBP to weaken PLN further from here. Therefore, we will probably see PLN going slightly sideways in the coming months but our analytical bias remains towards a stronger PLN as we expect the global and Polish economy to see stronger growth from Q2 and onward.
On the back of this, for corporates with PLN income, one could consider hedging via participating forwards. Indicatively, this would put a worst-case exchange rate at 4.6320. If in 12M the spot is below 4.51, it would also be better than doing regular forwards. We would view this as a rather conservative hedge but leaning in to the forecast. For expenses, we recommend buying PLN via forwards whereby the interest rate differential adds on top of a high EUR/PLN (chart 2). We target 4.50 on a 3M horizon which suggests that we are optimistic for politicians to work their way towards a solution but that even so, the rally in PLN appears to be mostly a theme that could come about from Q2 and onwards.
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