Market Summary by AFORTI: Shifting sentiment regarding the USA–Iran situation, weakness in the zloty, the threat of a trade war, the resignation of the UK Prime Minister

Last week, the markets were dominated by reports of shifting tensions between the USA and Iran, the threat of a trade war between the United States and Europe, and the unexpected resignation of the UK Prime Minister. The domestic WIG index fell, whilst Brent crude oil and gold prices also dropped significantly. The Polish zloty came under supply pressure, weakening against both the euro and the US dollar. In the coming week, investors’ attention will focus on domestic CPI and PMI readings, key US labour market data (the so-called ‘payrolls’), as well as information on inflation in the Eurozone and UK GDP growth.  

Economic indicators

Poland

• Employment growth (y/y) (May): actual -0.9%; forecast -0.9%; previous -0.9%;
• Producer Price Index (PPI) (y/y) (May): actual 2.4%; forecast 2.5%; previous 2.1%;
• Retail sales (y/y) (May): actual 3.0%; forecast 3.8%; previous 2.8%;
• Wages in the corporate sector (y/y) (May): actual 5.8%; forecast 6.0%; previous 5.4%;
• Car registrations (y/y) (May): actual 6.3%; previous 10.3%;
• Car registrations (m/m) (May): actual -4.30%; previous -18.90%;
• M3 money supply (year-on-year) (May): actual 11.0%; forecast 11.4%; previous 11.3%;
• Unemployment rate (May): actual 5.9%; forecast 5.9%; previous 6.0%;

Eurozone

• Consumer confidence (June): actual -17.7; forecast -18.0; previous -19.0;
• HCOB Manufacturing PMI (June): actual 51.3; forecast 51.6; previous 51.8;
• HCOB Services PMI (June): actual 48.9; forecast 48.6; previous 47.7;
• HCOB Composite PMI (June): actual 49.5; forecast 49.1; previous 48.5;

Germany

• HCOB Manufacturing PMI (June): reading 50.0; forecast 50.3; previous 50.1;
• HCOB Services PMI (June): reading 48.8; forecast 49.0; previous 48.1;
• HCOB Composite PMI (June): reading 48.0; forecast 49.9; previous 48.8;
• Business expectations (June): reading 84.1; forecast 85.0; previous 83.9;
• Current situation assessment (June): reading 87.0; forecast 88.0; previous 85.1;
• Ifo Business Climate Index (June): reading 85.6; forecast 85.6; previous 85.0;

France

• Consumer confidence (June): reading 84; forecast 83; previous 82;
• HCOB Manufacturing PMI (June): reading 50.7; forecast 50.2; previous 49.7;
• HCOB Services PMI (June): actual 47.4; forecast 45.9; previous 44.3;
• HCOB Composite PMI (June): actual 47.6; forecast 46.0; previous 44.9;

United Kingdom

• S&P Global Services PMI (June): reading 48.7; forecast 50.1; previous 49.3;
• S&P Global Manufacturing PMI (June): reading 53.1; forecast 53.5; previous 53.9;
• S&P Global Composite PMI (June): actual 49.4; forecast 50.6; previous 49.7;

USA

• S&P Global Services PMI (June): actual 51.3; forecast 51.1; previous 50.7;
• S&P Global Manufacturing PMI (June): actual 55.7; forecast 54.6; previous 55.1;
• Current account balance (Q1): actual -226.8B; forecast -212.0B; previous -221.1B;
• New home sales (May): actual 580K; forecast 638K; previous 628K;
• Crude oil inventories: actual -6.088M; forecast -3.900M; previous -8.263M;
• Core PCE price index (y/y) (May): actual 3.4%; forecast 3.4%; previous 3.3%;
• Core PCE price index (m/m) (May): actual 0.3%; forecast 0.3%; previous 0.3%;
• Gross Domestic Product (GDP) (quarter-on-quarter) (Q1): actual 2.1%; forecast 1.6%; previous 0.5%;
• Orders for durable goods (month-on-month) (May): actual -4.5%; forecast -5.0%; previous 8.5%;
• Initial claims for unemployment benefits: actual 215K; forecast 225K; previous 227K;

China

• 5-year LPR benchmark lending rate (June): actual 3.50%; forecast 3.50%; previous 3.50%;
• LPR benchmark lending rate (PBoC): actual 3.00%; forecast 3.00%; previous 3.00%;
• Industrial profits year-to-date (YTD) (May): actual 18.8%; previous 18.2%;

Currency market

This week, the euro (EUR) strengthened against the zloty (PLN) by 0.69%. The euro traded within the range of 4.2431 – 4.2937. 

Similarly, the US dollar (USD) strengthened against the zloty (PLN) by 1.45%. The dollar’s exchange rate fluctuated between 3.7111 and 3.7887.  

Oil and gold markets

The price of Brent crude fell by 8.53%. The price fluctuated between 72.00 and 81.31 USD per barrel.  

Similarly, the price of gold fell by 1.65%. The price of gold fluctuated between 3,978.97 and 4,232.15 USD per ounce.  

Stock Exchange

The WIG index fell by 2.66%. The WIG index fluctuated between 133,775 and 139,549. 

Key events from the past week

Fluctuating USA–Iran relations: Following the signing of a ceasefire memorandum, stability in the Strait of Hormuz was once again threatened by US retaliatory air strikes on Iranian depots. Donald Trump’s public threats provoked strong opposition from Tehran during the negotiations in Switzerland. Ultimately, working groups were set up, with a 60-day deadline set for reaching a final agreement. Signs of de-escalation reduced the market risk premium, bringing Brent crude prices below $80 per barrel.

Weakness of the zloty: The Polish currency came under strong supply pressure, weakening against the dollar, the euro and other regional currencies (the Czech koruna and the forint). On the one hand, it is being weighed down by a strong dollar, supported by the Fed’s restrictive policy and high interest rates. On the other hand, the Monetary Policy Council’s dovish rhetoric has led markets to stop pricing in interest rate rises in Poland. As a result, the EUR/PLN exchange rate has approached the 4.30 level.

Threat of a trade war: Donald Trump has announced the imposition of 100 per cent tariffs on goods from European countries that introduce a digital services tax (DST) on US technology firms. Such levies are already in place in the UK and France, amongst others. In response, the European Commission has declared its intention to defend its regulatory autonomy. The escalation of tensions and the risk of a trade war with the US pose the greatest threat to European exporters in the automotive, agri-food and luxury goods sectors.

Resignation of the UK Prime Minister: Keir Starmer has unexpectedly stepped down as Prime Minister less than two years after the Labour Party’s resounding victory. The decision came in the wake of a drastic drop in support, triggered by the rising cost of living, the migration crisis and poor results in local elections, in which Reform UK triumphed. Under pressure from his own political base, Starmer tendered his resignation. The current frontrunner to take over the post is the former mayor of Manchester, Andy Burnham.

A valuation correction in the technology sector: The technology sector, which has so far been the driving force behind the bull market fuelled by the development of artificial intelligence (AI), is undergoing market scrutiny. Investors are analysing whether high expenditure on AI infrastructure and rising component costs will be reflected in future profits. Downward pressure is being exacerbated by a strong dollar and the Fed’s policy. One sign of growing risk aversion and a slowdown in the FOMO phenomenon is, amongst other things, the high volatility in the share price of the recent market debutant, SpaceX.

Events worth watching this week

Outlook for the zloty: The zloty’s valuation will be influenced by Tuesday’s (30 June) preliminary CPI inflation readings. On Wednesday (1 July), the market will see the PMI index for Polish industry. In the absence of other key macroeconomic releases, the zloty’s exchange rate will largely depend on global market sentiment.

Outlook for the euro: The euro’s exchange rate will react to Tuesday’s (30 June) data from Germany on unemployment and CPI inflation. Wednesday (1 July) will be crucial for the single currency, as inflation figures for the entire Eurozone are due to be released. On Thursday (2 July), investors will see the EU unemployment rate.

Outlook for the dollar:Outlook for the poundOutlook for the poundrate will be influenced by Tuesday’s (30 June) JOLTS report. Thursday (2 July) will be particularly significant for the markets, when key data from the US labour market will be published, including the non-farm payrolls report. On Friday (3 July), US stock markets will be closed.

Outlook for the pound: The pound’s exchange rate will be shaped by Tuesday’s (30 June) release of UK GDP growth figures. On Wednesday (1 July), investors’ attention will focus on the PMI for the domestic manufacturing sector. The macroeconomic calendar for this currency will be rounded off by Friday’s (3 July) PMI readings for the services sector.

TREASURY DEPARTMENT

AFORTI.BIZ