Financial market
Interest Rate Market
In 2018 the returns on Treasury bonds in the 2-year sector dropped by 45 b.p. to 1.35%, in the 5-year sector by 30 b.p. to 2.29%, and in the 10-year sector by 47 b.p. to 2.83%. Such a significant increase in the debt market was caused mainly by significant easing of the Monetary Policy Council’s policy, supported by a significant drop in inflation.
Concerns about the weakening condition of the global economy led to a drop in returns on bonds on base markets, i.e. the US market and the Euro Area, which indirectly supported the domestic market.
2018
The excellent condition of the financial sector market had a favourable impact on bond valuations; it led to a limitation in the supply of Treasury securities on the primary market and improved the creditworthiness of Poland (S&P first increased the rating view of Poland to positive, and then increased the rating from BBB+ to A-).
Currency Market
At the beginning of 2018, the EUR/PLN rate was 4.18, during the year it increased to 4.29. In Q1 2018 the rate dropped to approx. 4.13 in connection with temporarily increased expectations as to interest rate increases in Poland and a good mood on global financial markets at the beginning of the year. The dove position of the Monetary Policy Council regarding the prospects of the monetary policy in Poland and the hawk position of the Fed on interest rate hikes started to impose pressure on the zloty. In the first days of July the zloty was at its weakest, also because of concerns about the escalation of the US-Chinese trade war. The resumption of bilateral trade negotiations reduced the risk aversion and jointly with the very good conditions of public finances (historically good results of the State budget) enabled stabilizing the EUR/PLN exchange rate around 4.30.
The CHF/PLN exchange rate was 3.57 at the beginning of 2018. Improvement in global investment sentiments at the turn of Q1 and Q2 enabled the zloty to significantly strengthen its position vis-à-vis the Swiss franc, therefore, by mid-April the exchange rate dropped to approx. 3.47. In further months the CHF/PLN rate once again increased due to the position of the Fed and RPP referred to above. In effect the CHF/PLN exchange rate was 3.81 at the end of 2018.
Share Market
2018 was a global bear market for shares. As of mid-January the WIG index noted losses and ultimately it ended the year at a level of almost -10%, despite the very good economic conditions in Poland.
The following factors had a negative impact on the Polish share market:
- floods of redemptions of participation units in certain investment fund companies, which necessitated the sales of their shares;
- the trade dispute between the US and China;
- re-imposition of sanctions on Iran;
- political turbulences in important Euro Area countries: Italy, Germany and France;
- a drop in risk appetite;
- increases in interest rates in the USA which strengthened the American dollar, which contributed to an outflow of capital from the emerging markets.