Markets limit their activity
On Monday debt securities dealers decided to cease operations, and the stock market and the Polish financial markets were closed on Friday. Volumes over the week were lighter than usual and the indices remained less volatile.
Both the WIG20 and the złoty closed the week on Thursday on almost unchanged levels. The main event on the financial markets was the auction of two-year bonds. Demand from investors for the zł.3.5 billion issue stood at 2.5 times the supply. This leaves a positive outlook for bond yields and currency for the future. At the moment the Polish currency lies in the hands of bond holders. Expectations of deep interest-rate cuts cause this market to behave very strongly. Apparently, lower interest rates will cause an increase in bond prices and generate additional gains for investors. Charts indicate a very strong downtrend in Polish debt yields and this trend hasn't changed over the last few weeks with USD/PLN contraction. This fuels hope that the złoty will continue to strengthen if interest-rate expectations do not change. Dariusz Filar, a member of the Monetary Policy Council (RPP), said last week that deep interest-rate cuts may not be essential in response to possible political instability this year caused by elections. Filar also said that, in his opinion, the "natural real interest rate" should be about 3.5 to four percent in the Polish environment. At the moment with inflation at about four percent, the real interest rate is as low as two percent. Even if inflation falls this week to two percent, the nominal interest rate should be according to this equation six percent, i.e. the current interest rate. This reads as "there is no more room for deep interest rate cuts." The currency market reacted with zł.0.02 gain in value to one euro.
The WIG20 dropped quite heavily on Monday and was recovering during the week. The rise above the 2,000-point mark was, however, not persistent. There were relatively few events on the stock market. The strike in TP SA, the nation's biggest telecom, was postponed until Monday. Trade unions are requesting the board of TP SA to rethink its intention to cut 2,800 jobs (already reduced from 3,500). The company is, however, being forced to consider much deeper restructuring. TP SA is losing its market and recently suffered a blow in the local calls sector, which it had considered 'untouchable'. Its main competitors are Tele2, Netia, Energis, and the mobile networks. TP SA is losing on all fronts except in the field of broadband internet connections. The stock price of TP SA is behaving in this pre-strike environment quite strongly, remaining one of the most liquid stocks and thus a favorite of foreign investors.
The show must go on next week and the market will have to operate as usual. The week will bring the CPI, average payroll and salary figures. If the EUR/USD market remains as calm as last week, the złoty should be stronger. Inflation data showed negative surprise in January and February, and consequently helped the currency. N
Adam Łaganowski, Warsaw Investment Group (WGI)
Both the WIG20 and the złoty closed the week on Thursday on almost unchanged levels. The main event on the financial markets was the auction of two-year bonds. Demand from investors for the zł.3.5 billion issue stood at 2.5 times the supply. This leaves a positive outlook for bond yields and currency for the future. At the moment the Polish currency lies in the hands of bond holders. Expectations of deep interest-rate cuts cause this market to behave very strongly. Apparently, lower interest rates will cause an increase in bond prices and generate additional gains for investors. Charts indicate a very strong downtrend in Polish debt yields and this trend hasn't changed over the last few weeks with USD/PLN contraction. This fuels hope that the złoty will continue to strengthen if interest-rate expectations do not change. Dariusz Filar, a member of the Monetary Policy Council (RPP), said last week that deep interest-rate cuts may not be essential in response to possible political instability this year caused by elections. Filar also said that, in his opinion, the "natural real interest rate" should be about 3.5 to four percent in the Polish environment. At the moment with inflation at about four percent, the real interest rate is as low as two percent. Even if inflation falls this week to two percent, the nominal interest rate should be according to this equation six percent, i.e. the current interest rate. This reads as "there is no more room for deep interest rate cuts." The currency market reacted with zł.0.02 gain in value to one euro.
The WIG20 dropped quite heavily on Monday and was recovering during the week. The rise above the 2,000-point mark was, however, not persistent. There were relatively few events on the stock market. The strike in TP SA, the nation's biggest telecom, was postponed until Monday. Trade unions are requesting the board of TP SA to rethink its intention to cut 2,800 jobs (already reduced from 3,500). The company is, however, being forced to consider much deeper restructuring. TP SA is losing its market and recently suffered a blow in the local calls sector, which it had considered 'untouchable'. Its main competitors are Tele2, Netia, Energis, and the mobile networks. TP SA is losing on all fronts except in the field of broadband internet connections. The stock price of TP SA is behaving in this pre-strike environment quite strongly, remaining one of the most liquid stocks and thus a favorite of foreign investors.
The show must go on next week and the market will have to operate as usual. The week will bring the CPI, average payroll and salary figures. If the EUR/USD market remains as calm as last week, the złoty should be stronger. Inflation data showed negative surprise in January and February, and consequently helped the currency. N
Adam Łaganowski, Warsaw Investment Group (WGI)
