Last week brought a major negative surprise, as industrial production growth decreased by 1.3% y/y in August. We see considerable risks to our FY19 GDP growth forecast if the now-cast prediction of 3.8% growth in 3Q19 materializes. This week, the unemployment rate for August will be published, and it should arrive at a record-low 5.2%. Bond and FX markets are under the influence of PMI and Ifo indices for the Eurozone and major member countries.
September 24: Unemployment rate to stay record-low
We expect the unemployment rate to arrive at 5.2% in August, unchanged from the previous month. The situation on the labor market remains favorable, with wage growth fluctuating around 7%, employment growth slightly below 3% and record-low unemployment.
September 26: MPC meeting minutes to maintain dovish rhetoric
The NBP will publish the minutes from September's MPC meeting. The MPC kept the policy rate unchanged at 1.5% and reiterated its dovish stance. However, it pointed out that external risks to growth have intensified. We expect the policy rate to remain stable until the end of 2020 and beyond.
Last week's highlights
Wage growth came in at 6.8% y/y in August, while employment growth arrived at 2.6% y/y.
Industrial production surprised visibly to the downside, as it decreased by 1.3% y/y in August. The slowdown in global manufacturing transmitted into Polish industry and the negative calendar effect (-1WD) added further pressure.
Retail sales increased by 6.0% y/y in August, maintaining solid growth dynamics.
In light of the August data, we see considerable risks to our FY19 growth forecast, as our now-cast model suggests the growth moving toward 3.8% in 3Q19.
Bond market drivers
10Y yield holds above 2%
Over the course of the week, core market developments and weaker local macro data weighed on the long end of the Polish curve. While the 10Y German Bund went down by almost 10bp, the 10Y Polish yield decreased by 12bp. As a result, the spread vs. the 10Y German Bund fluctuated between 255bp and 260bp. This week opened with a strong negative surprise, as the preliminary PMI Index for manufacturing in Germany in September plummeted to 41.4, the lowest level since the 2012 recession. Thus, the Polish long end might follow the German market and dive as well. This week, local releases will be neutral for the bond market.
Weekly performance of 5Y bonds (% in EUR)
Yield developments mostly followed that of the German Bund or even declined more (namely in Hungary and Poland). The Czech 10Y yield stayed flat, which could be underpinned by the relatively hawkish comments from rate-setter Holub last week. In Romania, yields on longer-dated bonds went up more, amid three consecutive rejections of all bids at bond auctions by the MinFin recently, as demand was low.
FX market drivers
Zloty weakened sharply
The zloty paired all recent gains and depreciated by 1.2% vs. the EUR and closed the week above 4.37 vs. the EUR. We think that the recent weakening was mostly driven by the FED decision and US dollar strengthening. The disappointing performance of Polish industry did not have a significant impact on the zloty. As for this week, PMI indices for the Eurozone and major member countries will be the most important releases for the EURUSD. In our view, the EURPLN might remain at an elevated level and hover around 4.35 in the coming weeks.
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