A month ago the president extensively explained the differences between the current macro‑economic conditions and those after the outbreak of war in Ukraine. This assessment remains current.
RPP unchanged – the "wait‑and‑see" policy maintained
As expected, the Monetary Policy Council kept interest rates at the current level. The reference rate therefore remains at 3.75%. The statement, very similar to the one published a month ago, was unchanged and kept in a "wait‑and‑see" tone. The statement does not provide new information helpful for determining the outlook for monetary policy in Poland. We maintain our expectations that until July – when the RPP will review the new macro‑economic projection – interest rates will not change. Further prospects depend on the situation in the Middle East, the openness of the Strait of Hormuz, and the prices and availability of energy resources.
In our baseline scenario we assume a de‑escalation of the conflict in the second half of the year and a decline in energy commodity prices. If such a scenario were to materialise, it does not seem to us that inflation prospects would require a correction of the current level of interest rates. However, if the negotiation impasse were to extend and transport through the Strait of Hormuz remained hindered, the probability of a hike would increase.
SP500 hits record, markets play for de‑escalation
Yesterday's session across the ocean ended with strong gains in major indices and another record for the SP500. The focus remains on the situation in the Middle East, and market participants reacted to U.S. reports of improving prospects for an agreement with Iran. French President E. Macron was persuading Iran to a multilateral mission in the Strait of Hormuz. Orders published today in German industry for March turned out to be better than expected, rising 5.0% month‑over‑month versus a consensus of 1.0% month‑over‑month. This may support further growth of the EURUSD rate.
The yen clearly gained in fear of a currency intervention. Oil prices are stabilising around $101 per Brent barrel, and the EURUSD rate remains near 1.175. Today the main event of the day for domestic investors will be the NBP president's conference. A. Glapiński may remain cautious despite some improvement in sentiment, which could keep market rates relatively high, curbing yesterday's decline in yields.
Strong gains on the Warsaw Stock Exchange and falling bond yields
Yesterday's equity session was characterised by optimism. The next session in a row saw domestic equity indices gain, with gains quite substantial, about 1.5‑2.6%.
This was helped by similar changes on major trading floors and hope for positive outcomes in the Middle East.
The złoty gained against the euro from the start of the session against major currencies. The EURPLN rate fell to about 4.226 from about 4.245, although it rebounded in the afternoon to about 4.232.
The złoty benefited from the euro's strengthening against the dollar, and most currencies gained against the euro. On the domestic interest rate market, market rates fell sharply.
The swap curve moved down about 20‑25 basis points, although by the end of the day rates rose about 5 basis points. This echoes a significant drop in oil prices in hopes of improving the prospects for an agreement between the U.S. and Iran. Bond yields fell somewhat less – about 10 basis points. At the end of the day, 10‑year bond yields were about 5.62%.
The Monetary Policy Council's decision and statement had no significant impact on the market. Some market participants may hope that there will still be no rate hikes this year, and additionally bonds support earlier inflows into funds over the last dozen months despite March already bringing significant outflows (about 7 billion PLN). The RPP moved the June meeting to 1‑2 June from 9‑10 June.
On Thursday, May 7, the standing committee of the Council of Ministers will address the government project of the crypto‑asset market act. The president's office informed that President K. Nawrocki has sent the project of the crypto‑asset market act to the Sejm, which is based on a government draft but with a number of own amendments.
Currencies under geopolitical pressure – EURUSD higher, dollar weaker in a "risk‑on" environment
On European equity markets the green colour dominated, and equity index gains reached about 2%. President D. Trump assessed that the war with Iran has very high chances of ending and it is possible that it will end before his trip to China next week. He also added that it is still too early for face‑to‑face talks with Iran. Oil prices fell to about $98 from about $109, although they returned slightly above $100 in the afternoon. Eurozone PPI inflation rose to 2.1% year‑over‑year (3.4% month‑over‑month) above expected 1.8% year‑over‑year.
The EURUSD rate rose from about 1.171 to about 1.18, aided by data from the eurozone and improved optimism in markets. In the afternoon the EURUSD rate slightly fell to about 1.175. On basic debt markets there was a clear strengthening.
On the German market, short‑term bonds strengthened by about 12 basis points, and long‑term bonds after a yield decline of about 5 basis points at the opening fell further by another 4 basis points to about 3%. In the case of U.S. debt the situation was similar, and the yield decline reached about 7 basis points (the 10‑year yield fell to 4.35%).
