Weekly Focus Poland: Wage growth and employment to remain stable

Erste Bank Research Team Erste Bank

This week:

May 21: Wage growth and employment to remain stable

We see wage growth to increase by 6.2% y/y in April, while the market is a bit more positive and expects growth of 6.5% y/y. On the other hand, employment growth should remain stable at 3.0% y/y in April. The situation on the labor market remains tight, with the unemployment rate holding below 6% (5.6% in April, according to the Ministry of Family, Labor and Social Politics).

May 22: Industrial production to slow down

Unlike the market, which expects industrial production growth to visibly accelerate to 9.0% y/y in April, we see growth as slowing down to 4.0% y/y due to the base effect. Separately, the PPI should marginally ease and land at 2.4% y/y, suggesting limited price pressure.

May 23: Easter effect to shift retail sales up in April

After sluggish performance of retail sales in March (growth of 3.1% y/y), we expect retail sales to increase by 6.5% y/y. The Easter effect and consumer confidence remaining high should be positive for the level of household spending.

After this week's releases, the full dataset for April will be available and we will provide our first now-cast of GDP growth in 2Q19. We believe that 2Q19 growth could remain around 4.5%, as the monthly indicators suggest a strong beginning to the current quarter.

Last week's highlights

Flash GDP for 1Q19 arrived at 4.6% y/y
MPC left key rate unchanged
CPI confirmed at 2.2% y/y in April, while core inflation increased to 1.7% y/y – highest level since November 2012

Bond market drivers

Polish 10Y yields increased to 2.9%

In the first half of the week, the long end of the curve was decreasing and 10Y yields went below 2.8%. After the GDP data and decision of the MPC to keep rates unchanged, 10Y yields started increasing. At the end of the week, the 10Y yield stood marginally below 2.9%. Despite positive signals from the German economy, worsening trade war prospects and gloomy market sentiment moved the 10Y German Bund further into negative territory. As a result, the spread vs. 10Y Bund went close to 300bp. This week, the local macro release should be neutral for the bond market.

Weekly performance of 5Y bonds (% in EUR)

The performance of the LCY bond market in the region was marginally negative last week. In Hungary and Croatia, the negative performance of the market has been mostly due to weakening of the currencies. Yield decreases have been observed among all CEE region countries due to lower German Bund yields.

FX market drivers

Zloty remains over 4.30 vs. EUR

Over the course of the week, the zloty remained above 4.30 vs. the EUR due to renewed global risk aversion. This week, the publication of Eurozone PMIs for May will be the most important macro factor for the development of the EURUSD. We might see further depreciation of the zloty ahead of the EU parliament elections and global trade tensions.

Download The Full Weekly Focus Poland

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY remains confined in a range; 158.00 holds the key

USD/JPY extends its consolidative move during the Asian session on Tuesday, trading below 158.00 amid diverging forces. Hawkish BoJ expectations support the Japanese Yen amid looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, holds back traders from placing aggressive directional bets.

$4,100: For how long can Gold defend that level?

Gold resumes the recent downtrend, approaching $4,100 early Tuesday. The US Dollar consolidates near 17-month highs amid high Treasury yields and a rebound in oil prices. From a short-term technical view, Gold’s path of least resistance appears to be down.

Zcash: NU7 upgrade sets the stage for ZEC to resume its rally

Zcash (ZEC) hovers around $1,348 at press time on Tuesday, sustaining its mild gains from Sunday. The network upgrade NU7 went live on Monday, boosting transaction speed and redirecting 60% of transaction fees into future rewards. The institutional outflow eased to roughly $3.50 million on Monday, down from $93.56 million last week, suggesting reduced pressure from redemptions.

The scarcity trade is gaining momentum – The biggest commodity moves may still be ahead

Something extraordinary is happening across global Commodity markets. Oil is above $100. Diesel has reached record prices. Copper has broken records. Global food prices are rising again. China is restricting fuel exports. Governments are releasing emergency reserves.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.