Weekly Focus Poland

Quite heavy macro calendar this week. Employment and nominal wage growth to be released on Tuesday. Industrial output and retail sales data (due Wednesday) should confirm solid 2Q17 GDP growth, although slightly below 4% seen in 1Q. ECB meeting to be key event for FX and bond market, as investors seeking confirmation of more hawkish Draghi.

July 18: Market expects employment to grow 4.3% y/y in June and nominal wage growth to go up by 5.0% y/y, marginally lower than our estimate of 5.1% y/y growth.

July 19: Industrial output to grow 3.2% y/y in June (vs. market expectations of 3.9% y/y). We see retail sales growth of 5.8% y/y (vs. consensus of 6.8% y/y).

Spread vs. Bunds narrows further Over the last week, the long end of the curve has been relatively stable. Although German yields went up, the spread vs. Bunds has been narrowing, keeping 10Y Polish yields close to 3.32% throughout the week. On Monday, however, long-term yields dropped marginally. There are many domestic releases this week, but they should have limited impact on the bond market. Thursday’s ECB meeting should be the key event. Draghi’s recent comments have been read by the market as hawkish and have visibly pushed up the long end of the German curve. Investors will thus be looking for confirmation as to whether Draghi has indeed turned hawkish. A dovish tone, on the other hand, would be positive for the bond market and we expect the Polish yield curve to follow developments on core markets.

Zloty supported by global sentiment The zloty strengthened more visibly towards the end of the week because of the CPI data in the US. The disappointing release was a trigger for the zloty to move toward 4.20 vs. the EUR at the end of the week. On Monday, the zloty lost some of this strength. If there are no major surprises in monthly data releases, the zloty should remain relatively strong. At the end of the week, however, global sentiment will set the tone for the EURPLN, as the ECB meeting will be closely watched by investors.

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