The zloty ended Tuesday’s session in the
green despite the disappointing trade
balance and C/A numbers. The current
account deficit came in at a massive EUR –
794 m. as the TB dropped from the 160 m
surplus in June to 761 m deficit in July with
buoyant imports almost entirely behind the
result.
The 27% rise (in imports) may be take
as a sign that domestic demand is gaining
strength but given the far from spectacular
retail sales results we would be cautious to
judge whether July’s result was the corollary
of the long awaited consumption boom. We
have of course seen more than healthy
investment performance recently, which we
believe continued into the first month of 3Q,
but more data will be needed to assess
whether the rise in import dynamics and the
continued slowdown in exports was due to
rising domestic demand or was the result of
one-off factors.
At the moment, it seems at
least equally likely that the strengthening of
the zloty may have accelerated the growth of
import orders in the second half of July.
Since then the zloty returned to the 4.0
EUR/PLN area bringing some relief to
exporters and possibly hurting imports. If so,
the disappointing July number could be
followed by a strong result in August. In any
case it’s still far too early to draw binding
conclusions as to a potential change in the
(positive) external balance trend that we
have seen so far this year. The market
seems to see things in equally bright colors
– after a knee jerk reaction from the zloty all
the losses were more than reversed and the
unit ended the day higher against the euro
than ahead of the release.
We could see some buying early in the
morning today after PM Jaroslaw Kaczynski
informed last night that Zyta Gilowska would
return to the government next week.
However since Gilowska has not yet made
the call herself in the end the zloty should
stay range-bound ahead of the all-important
inflation data tomorrow and, if these fail to
inspire, ahead of the US CPI data on Friday.
(CSOB - Investment research)