Increased volatility at start of week

Real economy data for August suggest that the recovery has lost some of its color in the retail sector, while manufacturing surprised to the upside. The unemployment rate should complete the picture of the labor market. The week started with increased volatility on the bond and FX market.

Watch this week

September 23 | Stable unemployment rate in August

According to preliminary information from the Ministry of Labor, Family and Social Policy, the unemployment rate remained stable at 6.1% in August. We expect the preliminary figure to be confirmed. All in all, the situation on the labor market remained mostly unchanged over the summer; however, September could bring some deterioration. Although we could see some more visible increase in the unemployment rate, on average this year it will likely land below our current expectations of 6.3%.

September 23 | BGK to hold bond auction

Polish development bank BGK will hold another bond auction to obtain further financing for the COVID-19 fiscal response. So far, BGK has issued PLN 77bn in state-guaranteed bonds with 5Y, 7Y, 10Y and 13Y maturities.

September 25 | Fitch to review Polish rating

This week, Fitch is scheduled to review the Polish credit rating, which currently stands at ‘A-' with stable outlook. In a recent comment, Fitch stated that it will closely watch public debt development in Poland to see when it will return to a downward trajectory.

Last week's highlights

• MPC kept target rate unchanged at 0.1%. Central bank bought PLN 685mn in Treasuries and state-guaranteed papers, bringing total volume of QE program to almost PLN 104bn (4.6% of GDP).

• Core inflation followed headline CPI figure and dropped to 4.0% y/y in August.

• Labor market statistics in line with expectations, as wage growth arrived at 4.1% y/y and employment at -1.5% y/y in August.

• Solid performance of manufacturing sector, as industrial production came in at 1.5% y/y in August. Construction sector has been hit hard by pandemic, as construction growth dropped further to -12.1% y/y in August.

• Retail sales disappointed in August, at just 0.4% y/y.

• MPC member Kochalski said that "interest rates are at an adequate level".

Market developments

Bond market drivers | Long end of curve broadly unchanged

Over the course of the week, the long end of the curve was broadly unchanged and stood at around 1.35%. Towards the end of the week, we saw a slight change, as the 10Y yield dropped below 1.35%. The downward move continued on Monday, as the 10Y went sharply down below 1.3% following core market developments. The spread over the 10Y Bund remains locked at 180bp. After last week's switch auction, Poland has 98% of this year's borrowing needs covered. This week's local macro release is unlikely to attract market attention.

FX market drivers | EURPLN stable around 4.46

Last week, the EURPLN was mostly unchanged and fluctuated around 4.46. However, Monday brought a sharp change in market mood and the EURPLN went up toward 4.50 on the back of US dollar strengthening and increased local political tensions in recent days. Therefore, we see upside risks to our current year-end EURPLN forecast. This week's local macro releases should have no impact on the zloty. On the other hand, the PMIs for September for the Eurozone as a whole and major member countries will be released. The markets will be looking at the extent of the economic damage done by the strong rise of COVID-19 infections. This could impact the US dollar and thus the zloty.

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