Market Summary by AFORTI: Progress in U.S.–Iran peace talks, a slowdown in the Polish economy, and Putin’s visit to China

Last week, markets were dominated by reports of progress in U.S.–Iran talks, the absence of a gas agreement during Vladimir Putin’s visit to China, and signs of a slowdown in the Polish economy. Brent crude and gold prices declined, while Poland’s WIG index rose. The Polish zloty strengthened slightly against the euro and remained broadly unchanged against the U.S. dollar. In the coming week, investors will focus on preliminary CPI inflation readings from Poland and the eurozone, U.S. GDP data, and scheduled speeches by the heads of the ECB and the Bank of England.

Economic indicators

Poland

1. Core CPI (YoY) (April): actual 3.0%; forecast 2.9%; previous 2.7%;
2. Employment growth (YoY) (April): actual -0.9%; forecast -0.9%; previous -0.9%;
3. PPI (YoY) (April): actual 1.9%; forecast -0.1%; previous 1.2%;
4. Industrial production (YoY) (April): actual 3.1%; forecast 4.2%; previous 7.5%;
5. Corporate sector wages (YoY) (April): actual 5.4%; forecast 6.0%; previous 6.6%;

Eurozone

1. Trade balance (March): actual 7.8B; forecast 5.4B; previous 11.1B;
2. CPI (YoY) (April): actual 3.0%; forecast 3.0%; previous 2.6%;
3. Core CPI (YoY) (April): actual 2.2%; forecast 2.2%; previous 2.3%;
4. Manufacturing PMI (May): actual 51.4; forecast 51.7; previous 52.2;
5. Services PMI (May): actual 46.4; forecast 47.8; previous 47.8;
6. S&P Global Composite PMI (May): actual 47.5; forecast 48.8; previous 48.8;

Germany

1. German GDP (QoQ) (Q1): actual 0.3%; forecast 0.3%; previous 0.2%;
2. German GDP (YoY) (Q1): actual 0.4%; forecast 0.3%; previous 0.4%;
3. GfK Consumer Climate in Germany (June): actual -29.8; forecast -33.7; previous -33.1;
4. Ifo Business Climate Index in Germany (May): actual 84.9; forecast 84.2; previous 84.5;
5. Manufacturing PMI in Germany (May): actual 49.9; forecast 51.0; previous 51.4;
6. Services PMI in Germany (May): actual 47.8; forecast 47.1; previous 46.9;

France

1. Business Climate in France (May): actual 102; forecast 100; previous 100;
2. Manufacturing PMI in France (May): actual 48.9; forecast 52.1; previous 52.8;
3. Services PMI in France (May): actual 42.9; forecast 46.6; previous 46.5;
4. S&P Global Composite PMI in France (May): actual 43.5; forecast 47.7; previous 47.8;

United Kingdom

1. Employment change 3m/3m (MoM) (March): actual 148K; forecast 107K; previous 25K;
2. Unemployment rate (March): actual 5.0%; forecast 4.9%; previous 4.9%;
3. CPI (YoY) (April): actual 2.8%; forecast 3.0%; previous 3.3%;
4. Retail sales (YoY) (April): actual 0.0%; forecast 1.3%; previous -1.4%;
5. Services PMI (May): actual 47.9; forecast 51.7; previous 52.7;
6. Manufacturing PMI (May): actual 53.7; forecast 52.9; previous 53.7;

USA

1. Continuing jobless claims: actual 1,782K; forecast 1,790K; previous 1,778K;
2. Philadelphia Fed Business Conditions Index (May): actual 53.2; forecast —; previous —;
3. Manufacturing PMI (May): actual 55.3; forecast 53.8; previous 54.5;
4. Services PMI (May): actual 50.9; forecast 51.1; previous 51.0;
5. Crude oil inventories: actual -7.883M; forecast -2.500M; previous -4.308M;
6. Initial jobless claims: actual 209K; forecast 210K; previous 212K;
7. Housing starts (April): actual 1.465M; forecast 1.420M; previous 1.507M;
8. ADP weekly employment change: actual 42.25K; forecast —; previous 33.00K;
9. Pending home sales index (MoM) (April): actual 1.4%; forecast 1.0%; previous 1.7%;
10. University of Michigan Consumer Sentiment Index, final reading (May): actual 44.1; forecast 48.5; previous 48.1;

China

1. Unemployment rate in China (April): actual 5.2%; forecast 5.3%; previous 5.4%;
2. China’s year-to-date industrial production (YoY) (April): actual 5.6%; forecast —; previous 6.1%;
3. Industrial production (YoY) (April): actual 4.1%; forecast 6.0%; previous 5.7%;
4. Fixed asset investment (YoY) (April): actual -1.6%; forecast 1.7%; previous 1.7%;
5. PBoC Loan Prime Rate (May): actual 3.50%; forecast 3.50%; previous 3.50%;
6. PBoC Loan Prime Rate: actual 3.00%; forecast 3.00%; previous 3.00%;

Currency market

This week, the euro (EUR) weakened against the Polish zloty (PLN) by 0.17%. The EUR/PLN exchange rate traded within a range of 4.2365–4.2579

Meanwhile, the U.S. dollar (USD) remained broadly unchanged against the Polish zloty (PLN), despite fluctuations during the week. The USD/PLN exchange rate traded within a range of 3.6369–3.6743.

Oil and gold markets

Brent crude fell by 4.71%. The price traded within a range of USD 102.13–112.49 per barrel.

Gold also declined, falling by 0.73%. The price traded within a range of USD 4,457.30–4,591.59 per ounce.

Stock Exchange

The WIG index rose by 2.85%. The index traded within a range of 130,726–135,468.

Key events from the past week

Donald Trump’s visit to China: Donald Trump announced significant progress in negotiations, claiming that a peace agreement with Iran had largely been worked out. Its key assumptions include opening the Strait of Hormuz, unfreezing Iranian assets, and Tehran abandoning its nuclear weapons programme. Despite optimism on the U.S. side, Iran maintains that it will retain control over the strait and continue enriching uranium for civilian purposes. Given these differences, the talks — in which Pakistan is acting as mediator — may continue for some time, while the prospect of a swift compromise remains uncertain.

Slowdown in the Polish economy: April data from the Polish economy point to signs of a slowdown. Industrial production rose by only 3.1% year on year, marking a clear deceleration after a very strong March. In addition, the labour market is showing signs of cooling: employment fell by 0.9%, while wage growth slowed to 5.4%, weighing negatively on consumer demand. Sentiment has been further dampened by an unexpected rise in producer inflation (PPI) to 1.9%, as well as European Commission forecasts suggesting that Poland will record the highest deficit in the entire European Union, reaching 6.5% of GDP.

Putin’s visit to China: During Vladimir Putin’s visit to Beijing, no key agreement was signed on the construction of the Power of Siberia 2 gas pipeline, which was intended to compensate Russia for the loss of European markets. China rejected Gazprom’s offer, demanding the right to purchase gas at prices applied on Russia’s domestic market — as much as twelve times lower than previous rates charged to Europe. This situation clearly exposes Moscow’s weakness and shows that, amid Western sanctions, Russia is becoming entirely economically dependent on the tough terms dictated by Beijing.

Changes to Poland’s National Recovery Plan: The European Commission approved changes to Poland’s National Recovery Plan, ultimately removing the requirement to introduce a tax on the ownership of combustion-engine vehicles. As a result, Poland avoided penalties for failing to meet this milestone, which could have amounted to as much as EUR 4 billion. In exchange for abandoning the new tax, the Polish government committed to implementing alternative investments. These include allocating around PLN 3 billion to the decarbonisation of district heating and increasing funding for the EU’s secure satellite connectivity programme, IRIS².

Events worth watching this week

Outlook for the zloty: On Monday, 25 May, the zloty will be influenced by data on retail sales and M3 money supply. On Tuesday, 26 May, markets will receive the unemployment rate reading for April. However, the key event of the week for the domestic currency will be the preliminary CPI inflation reading scheduled for Friday, 29 May.

Outlook for the euro: On Thursday, 28 May, the single currency will react to a speech by European Central Bank President Christine Lagarde, as well as the publication of the minutes from the ECB’s latest meeting. The week will conclude on Friday, 29 May, with the release of key preliminary CPI inflation readings for Germany and France. These figures will have a decisive impact on the euro’s valuation ahead of the weekend.

Outlook for the dollar: On Monday, 25 May, U.S. markets will be closed due to Memorial Day. Volatility in dollar pairs is expected to increase on Thursday, 28 May, following the release of first-quarter GDP growth data and the report on initial jobless claims. On Friday, 29 May, market attention will shift to the Chicago PMI reading.

Outlook for the pound: Due to the UK Spring Bank Holiday, trading in the pound on Monday, 25 May, is expected to be characterised by lower liquidity and relatively calm market conditions. On Tuesday, 26 May, investors will receive the CBI Distributive Trades Survey. However, the most important signals for the British currency will come only on Friday, 29 May, when Bank of England Governor Andrew Bailey is scheduled to speak.

TREASURY DEPARTMENT

AFORTI.BIZ