Market Summary by AFORTI: The outlook for the after-holiday week in the financial market.
Last week was clearly influenced by the upcoming holidays and reduced market activity. The amount of data flowing into the markets also did not result in increased investor activity.
From our market - it is worth noting that as of April 1, VAT on food is returning to previous values. The zero VAT rate was a reaction to the uncontrolled rise in inflation, which has been particularly hard on consumers in terms of rising prices for basic foodstuffs. The recent drop in inflation has opened up space for the restoration of a 5% VAT on most food commodities. Of course, this does not mean an automatic price increase of an equal 5%. For one thing, many retail chains are already announcing promotions to offset the return of the increased VAT, and on the other hand, many food service companies are already indicating that the ability to deduct VAT is beneficial to them. So what will be the final effect? In our opinion, the price increase will not exceed about 2.5-3%. It will therefore not be as severe as we might expect. On the other hand, it means potential additional revenues for the budget by about PLN 12 billion. If we analyze the translation of this into inflation - here, unfortunately, we have to assume that inflation readings will increase by 1-1.2% per year. However, looking at food prices - there is a noticeable downward trend, which means that previous strong price increases have started to undergo strong corrections. We are also entering a period of declining fruit and vegetable prices, and this should also balance out the VAT changes.
Naturally, then, one can move on to preliminary inflation readings for March. The CSO tentatively reported that prices rose by 1.9%. And now it should be mentioned that the significant effect here was due to the base effect - and the rather ruthless battle between the two major retail chains - Biedronka and Lidl. Significant discounts and promotions clearly affected the prices of the inflationary basket, and this contributed to a noticeable increase in purchases. This, of course, is compounded by the usual higher consumer demand before Easter.
At this point, however, we should also look at high core inflation, which is estimated at 4.6-4.7%. So let's wait for the April readings - and keep in mind that the end of June will bring us the removal of the so-called anti-inflation shields on electricity. Of course, as consumers, we ask ourselves about the legitimacy of such measures. While answering this question - it is important to realize that these funds do not come from the mysterious resources of the government - but simply from our taxes. So the funds we pay in taxes are then "given" to us in price cuts. Is this model of redistribution of resources right? Not really. These resources are taken away from, for example, health care, or investments in infrastructure.
As we had a pre-Christmas week, which was shorter in the financial markets, by the holidays in the major currencies (EUR, CHF, GBP). In the local market, we had quite low volatility and typical "range trading" EUR/PLN moved in the corridor of 4.2850-4.3250, and at the end of the week, activity in the market practically froze and small movements of 2 worse were only the result of small volumes exchanged in the market under the current demand. Thus, it is difficult to look analytically and look for trends here. The post-Christmas week will probably be quite similar. The zloty will be subject to little pressure and, in our opinion, will consolidate around EUR/PLN 4.3000
EUR/PLN - perspective of the last 7 days.
Looking at the US currency, the dollar against the zloty registered little volatility. As a result, USD/PLN moved in the range of 3.9675-4.0000. This is a fairly narrow corridor and we did not have any surprises here. In our assessment, the dollar will consolidate around USD/PLN 3.98000
USD/PLN in the perspective of the last 7 days
EUR/USD quotes showed a little more momentum and the EUR/USD rate at its maximum reached 1.0960, only to end Friday 130 points lower - at 1.0730. The high market volatility on this currency pair reflects conflicting signals from the market and macroeconomic data. On the one hand, we have very good signals from the U.S. economy, but we also have signs that the ECB is going to help European economies gain momentum. In our opinion, the next few days are likely to see a consolidation of the EURO to the Dollar around 1.0750-1.0800.
EUR/USD in the perspective of the last 7 days
A brief look at commodity markets. The price of BRENT oil rose towards $90/barrel. We are dealing with increased demand and inventory building. Such increased demand is usually associated with escalating conflicts.
BRENT crude oil - last month USD/barrel
Gold - continues to remain on the spectrum of investor interest as a stable investment. Once again there is a realization of ATH. The level of $2,250/ounce shows that investor appetite is still very high and purchases of the bullion continue.
Finally, a brief look at our stock market. The stock market is consolidating in the vicinity of the WIG 82.500 This is quite surprising looking at the record-breaking stock market indices - such as the German DAX. So is the breathlessness of the Polish stock market a signal of breathlessness? Not necessarily. It seems to be an anticipation of an upward impulse and we will see increased interest in the capital market. Especially in light of falling inflation and potentially lower income from bank deposits.
Szymon Jańczak
Director of the Treasury Department
AFORTI.BIZ.