This week, first macroeconomic data for October will be released. We expect labor market to remain tight, with solid wage growth and stable employment growth. Industrial production is expected to slow, despite some recovery of new orders.
November 21 | Wage growth to remain solid. We expect the wage growth to land at 6.1% y/y in October, slightly below market expectations of 6.2% y/y, while employment should remain stable at 2.6% y/y in October. All in all, the labor market remains tight and supports a high level of household spending.
November 22 | Industry to stay weak. After the somewhat stronger print in September (5.6% y/y), we see industrial production growth slowing to 4.1% y/y in October. We are more optimistic than the market, as the consensus stands at a sluggish 2.5% y/y. While new industrial orders have somewhat recovered and increased by 12.6% y/y in September, manufacturing sentiment continues to drop. Slowing industrial production weighed on 3Q19 GDP, as the growth dynamics eased to 3.9% y/y. We think that the sluggish performance of manufacturing is likely to continue and 4Q19 GDP could slow down towards 3.6% y/y.
Bond market drivers | 10Y yield returned to around 2.1%. In the first half of a shorter week (due to the public holiday on Monday), the Polish 10Y yield went down by 10bp to around 2.05%. However, towards the end of the week, it followed core market developments and slightly recovered. This week, the long end of the curve should move around recent levels; the industrial production data for October should be a non-event for the bond market.
FX market drivers | Global tensions pushed zloty down. Last week, the zloty followed other emerging market currencies and continued to weaken, on the back of less optimistic trade war news, increasing tensions in Hong Kong and Jerome Powell’s testimony in Congress. The EURPLN went above 4.29 and is currently close to our yearend forecast at 4.30. As far as local factors are concerned, the publication of a new inflation and growth projection by the National Bank of Poland added further pressure to the zloty, as it confirmed the expected economic slowdown.
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