Market Summary according to AFORTI: strengthening of the PLN, optimism on the stock exchange and EU funds

The last week is still waiting for the final decisions on the Polish political scene. The president entrusted the mission of forming the new government to Mateusz Morawiecki. According to the rules, he has 2 weeks to present the composition of the new government and deliver an expose. The success of this mission is probably not expected in the current balance of parliamentary forces, so the scenario of a majority government being established by the parliamentary majority is becoming more and more realistic. It's true that it's still a month away, but most commentators of Polish political life expected this development. How may this situation translate into currency, debt and capital markets? The zloty is certainly under pressure and reacts with high daily volatility, but the scenario of gradual strengthening of the Polish currency is realized. The reason is undoubtedly the announcement of the release of advance payments from the European Union, the value of which is estimated at approximately EUR 5 billion. Such an injection into the Polish market will certainly translate into a strengthening of the currency, because part of this amount will certainly appear on the interbank forex market. It is true that this is only a small part of the amounts of the announced payments, but the volume of exchange will certainly cause the Polish currency to gain. The expected payment date is the second half of December, so strong downward movements of the zloty are still ahead of us. What currently influences the Polish market is mainly foreign data. Poland mainly provided data on inflation, which turned out to be higher than estimated. Although the difference was small, we can still expect that NBP interest rates will not be reduced in the near future.

Last week, we priced EUR/PLN quite conservatively in the range of 4.4100-4.4450. However, optimism in the market was greater and after breaking the strong support level of 4.4000, the Polish currency gained strongly, stopping its strengthening at around 4.3600. Our assumptions, of course, took this move into account, but in a slightly longer term. Meanwhile, the sharp downward move that occurred on November 16 surprised many analysts. The implementation of "stop losses" by investors and the sale of currencies by exporters significantly influenced the Polish market. Importers benefited from this move by making postponed purchases of foreign currencies, which at some point stopped the further strengthening of the PLN. Ultimately, we closed the week at levels around EUR/PLN 4.3900. Therefore, the question remains how the Polish currency will behave in the coming week. In our opinion, the strong support level of 4.4000 is currently a strong resistance level. Therefore, it can be assumed that EUR/PLN 4.4000 will effectively defend itself and will not allow the zloty to weaken above it. As for the level below - this week should bring further strengthening of the zloty - so the corridor of 4.3400-4.3800 should be rationally implemented. It should be remembered that many importers refrained from purchasing currencies, so declines in the valuation of foreign currencies will result in increased purchases. It should also be borne in mind that the holiday season is associated with increased consumer purchases, which are largely made abroad. This may significantly offset the pressure on the strengthening of the Polish zloty.

EUR/PLN over the last 7 days

Looking at the American currency, the dollar surprisingly weakened in relation to the Polish currency and at times it was heading to the psychological level of USD/PLN 4.0000. The main reason is changes in EUR/USD, but more details later in our comment. The assessment assuming USD/PLN moving in the range of 4.1350-4.1650 was very different from what happened on the market. Data from the United States had a strong impact on the valuation of the American currency and it is only a matter of time before the level of 4.0000 is broken. Our assessment adjusted for market data is testing the USD/PLN support of 4.0000 and the range of 3.9800-4.0200.

USD/PLN over the last 7 days

At this point, it is worth looking at what has happened on international markets. First of all, very good data from the USA. CPI inflation decreased from 3.7 to 3.2% y/y. Core inflation is down to 4%. What is happening in the US economy clearly shows that the inflation targets expected by the Fed are going in the expected direction. In response to the good data, bond yields fell by about 20 points - across the entire curve - showing that investors expect further declines in inflation and that the Fed will not raise interest rates.

EUR/USD over the last 7 days

Looking at the international situation, it seems that the situation in the Middle East has ceased to have an impact on markets and prices of raw materials - especially oil. The market concluded that the conflict would only concern the Gaza Strip and would not spread to the region. The price of BRENT crude oil, after falling to around USD 77, consolidated around USD 81 per barrel, showing that the market is stabilizing. Is this the end of the correction? You probably shouldn't expect sharp declines ahead of the holiday season when demand increases, but they shouldn't see changes above $90.

BRENT crude oil – last month USD/barrel

Gold – still remains a safe asset, consolidating around the level of USD 2,000/ounce. Quite high stability and investors maintaining their positions show that gold will not be subjected to pressure for sudden changes.

Finally, a short look at the stock markets. Optimism on the Polish currency also translated into the Polish capital market. Investors returned to the stock exchange, showing increased interest in shares of Polish companies. The 2,200 level has been broken and further purchases can be expected - mainly bank shares.

Quite similar things happened at WIG. Breaking the index at 74,000 shows that optimism has returned to the market.

Szymon Jańczak

Director of the Treasury Department

AFORTI Exchange S.A.