Market Summary by AFORTI: Breakdown in USA-Iran negotiations, rise in inflation in the Eurozone, resignation of the NBP governor

Last week, the markets were dominated by reports of the breakdown in USA-Iran negotiations, a rise in inflation in the Eurozone, and an unexpectedly ‘dovish’ shift in the stance of the NBP Governor, whilst interest rates remained stable (3.75%). Gold prices and the domestic WIG index recorded sharp declines, whilst Brent crude prices rose slightly, and the Polish zloty depreciated against both the euro and the US dollar. In the coming week, investors’ attention will focus on the ECB’s interest rate decision and Christine Lagarde’s speech, CPI and PPI inflation readings in the USA, as well as macroeconomic data from the UK (GDP) and Poland (current account balance).

Economic indicators

Poland

• Manufacturing PMI (May): actual 49.40; forecast 48.60; previous 48.80;
• GDP (y/y) (Q1): actual 3.5%; forecast 3.4%; previous 4.0%;
• GDP (quarter-on-quarter) (Q1): actual 0.6%; forecast 0.5%; previous 1.0%;
• Interest rate decision (June): actual 3.75%; forecast 3.75%; previous 3.75%;
• Foreign exchange reserves (EUR) (May): actual 255.60B; forecast not available; previous 254.80B;

Eurozone

• CPI (y/y) (May): actual 3.2%; forecast 3.2%; previous 3.0%;
• CPI (m/m) (May): actual 0.1%; forecast not available; previous 1.0%;
• Core CPI (y/y) (May): actual 2.5%; forecast 2.4%; previous 2.2%;
• HICP index, excluding energy and food (y/y) (May): actual 2.3%; forecast none; previous 2.1%;
• Core CPI (m/m) (May): actual 0.3%; forecast none; previous 0.9%;
• GDP (quarter-on-quarter) (Q1): actual -0.2%; forecast 0.1%; previous 0.1%;

Germany

• Germany Manufacturing PMI (May): actual 50.1; forecast 49.9; previous 51.4;
• Germany Services PMI (May): actual 48.1; forecast 47.8; previous 46.9;
• Germany Composite PMI (May): actual 48.8; forecast 48.6; previous 48.4;
• Germany Retail Sales (MoM) (April): actual -0.3%; forecast -0.4%; previous -0.3%;
• Retail sales in Germany (y/y) (April): actual -0.3%; forecast not available; previous 2.7%;
• IHS S&P Global Construction PMI (May): actual 42.4; forecast not available; previous 42.1;

France

• France Manufacturing PMI (May): actual 49.7; forecast 48.9; previous 52.8;
• France Services PMI (May): actual 44.3; forecast 42.9; previous 46.5;
• S&P Global Composite PMI in France (May): reading 44.9; forecast 43.5; previous 47.6;
• French IHS S&P Global Construction PMI (m/m) (May): reading 39.6; no forecast; previous 38.1;
• Exports in France (April): actual 54.6B; no forecast; previous 52.9B;
• France’s trade balance (April): actual -5.6B; forecast -6.2B; previous -5.4B;

United Kingdom

• Manufacturing PMI (May): actual 53.9; forecast 53.7; previous 53.7;
• Composite PMI (May): actual 49.7; forecast 48.5; previous 52.8;
• Services PMI (May): actual 49.3; forecast 47.9; previous 52.7;
• Nationwide House Price Index (HPI) (month-on-month) (May): actual -0.6%; forecast -0.1%; previous 0.4%;
• Approved mortgage applications (April): actual 65.94K; forecast 62.00K; previous 63.98K;
• Halifax House Price Index (y/y) (May): actual 0.5%; forecast 1.0%; previous 0.4%;

USA

• ISM Manufacturing Index (May): actual 54.0; forecast 53.3; previous 52.7;
• ISM Manufacturing Employment Index (May): actual 48.6; forecast 48.2; previous 46.4;
• ISM Manufacturing Index for New Orders (May): actual 56.8; forecast 54.5; previous 54.1;
• ADP Non-Farm Employment Change (May): actual 122K; forecast 118K; previous 105K;
• PMI for services (May): actual 50.7; forecast 50.9; previous 50.9;
• ISM index for services (May): actual 54.5; forecast 53.7; previous 53.8;
• Job Openings and Labour Turnover Survey (JOLTs) (April): actual 7.618M; forecast 6.860M; previous 6.887M;
• Initial jobless claims: actual 225K; forecast 214K; previous 212K;
• Non-farm payrolls (May): actual 172K; forecast 85K; previous 179K;
• Unemployment rate (May): actual 4.3%; forecast 4.3%; previous 4.3%;

China

• Caixin Manufacturing PMI (MoM) (May): actual 51.8; forecast 51.4; previous 52.2;
• Caixin Services PMI (May): actual 54.4; forecast 52.3; previous 52.6;

Currency market

This week, the euro (EUR) strengthened against the zloty (PLN) by 0.27%. The euro traded in the range of 4.2280 – 4.2485. 

Meanwhile, the dollar (USD) strengthened against the zloty (PLN) by 1.47% following fluctuations during the week. The dollar’s price fluctuated between 3.6274 and 3.6858.  

Oil and gold markets

The price of Brent crude rose by 1.42%. The price fluctuated between 92.65 and 98.95 USD per barrel.  

Similarly, gold fell by 4.78%. The price of gold fluctuated between 4,337.34 and 4,575.45 USD per ounce.  

Stock Exchange

The WIG index fell by 1.68%. The WIG index fluctuated between 134,658 and 137,942. 

Key events from the past week

Breakdown in USA-Iran negotiations: Iran has suspended the brokered negotiations with the USA, accusing Israel of violating the ceasefire through intensified attacks and the seizure of strategic positions in Lebanon. Tehran has demanded the immediate withdrawal of Israeli troops, threatening to close the Strait of Hormuz again and open a second front. Although Donald Trump insisted he had the situation under control, reports suggest he was locked in a bitter dispute with Prime Minister Netanyahu, who refused to halt military operations. This tense situation has caused nervousness in the markets and sharp price fluctuations.

Inflation rebound in the Eurozone: May consumer price inflation (CPI) in the Eurozone rose to 3.2% y/y, reversing the downward trend from April, when it stood at 3.0%. The main reason for this jump was rapidly rising energy prices, which rose by 10.9% year-on-year. Strong price pressures have effectively dampened risk appetite on European stock markets and reinforced the markets’ conviction that the ECB must take further ‘hawkish’ measures. Investors are currently actively preparing for an interest rate hike at the meeting scheduled for 11 June.

Statement by the NBP Governor: As expected, the Monetary Policy Council left interest rates at the current level of 3.75%. However, the markets reacted positively to the clear shift in the narrative from Governor Adam Glapiński. Following earlier concerns about further policy tightening, in June he emphasised that lower-than-expected inflation (3.1%) significantly reduces the risk of rate hikes, and that the current level of rates is appropriate and does not stifle economic activity. This “dovish” shift reassured investors, supported the Polish debt market and stabilised the zloty.

US labour market data: The May ADP report showed a steady increase in employment of 122,000 jobs in the US private sector, which slightly exceeded the previous month’s figure. Meanwhile, the number of new claims for unemployment benefits stood at 225,000, barely exceeding the market consensus. The continued strength of the labour market means the Fed can focus fully on curbing inflation. This situation drastically reduces the likelihood of a swift resumption of the cycle of interest rate cuts, which naturally strengthens the US dollar.

Oil as a barometer of currency valuations: Oil prices have become the main barometer of geopolitical sentiment and currency valuations. Every sign of an escalation in the conflict has driven up oil prices, fuelling global inflation fears and stimulating a flight of capital towards the safe-haven dollar. Conversely, renewed hopes of reopening transport routes have pushed the price of Brent crude down to around $95 per barrel. It is precisely this pressure from the oil market that has recently directly determined the behaviour of the EUR/USD exchange rate (defending support at 1.16) and limited volatility in the EUR/PLN pair.

Events worth watching this week

Outlook for the zloty: Friday’s (12 June) current account balance reading will influence the valuation of the Polish zloty. With a relatively light domestic calendar, our currency will remain heavily influenced by global sentiment. Of particular importance for the zloty will be the European Central Bank’s interest rate decision scheduled for Thursday (11 June).

Outlook for the euro: The single currency’s exchange rate will react to the speech by ECB President Christine Lagarde on Tuesday (9 June). However, the ECB’s interest rate decision scheduled for Thursday (11 June) will be a key event for the euro. The accompanying press conference will provide investors with crucial clues as to the bank’s future actions.

Outlook for the dollar: The most important day for the dollar will be Wednesday (10 June), when consumer price index (CPI) figures are due to be released. On Thursday (11 June), markets will analyse producer price inflation (PPI) and the number of new claims for unemployment benefits. The week will conclude with consumer confidence readings scheduled for Friday (12 June).

Outlook for the pound: The pound’s exchange rate may react to Tuesday’s (9 June) publication of the BRC retail sales index. However, Friday (12 June), which is packed with macroeconomic data, will be by far the most important day for the British currency. We will then see a wide range of figures, including GDP growth and industrial production data.

TREASURY DEPARTMENT

AFORTI.BIZ