PLN: Dovish Data Supports Rate-Cut Case, Zloty Depreciates

UBS expect the “UK index to extend by ~0.07 years at month-end, which is slightly lower than the historical 3-year average end-Mar extension of ~0.09 years. The UK inflation-linked index is expected to extend by a huge 0.06 years at the end of this month due to UKTI 2049 syndication and UKTI Mar-2026 dropping out of the index”.

The Eurozone-wide manufacturing PMI saw a small beat at 48.7 (vs 48.2 cons, 47.6 prior). Our calculations imply the average ex-France and Germany manufacturing PMI was between 48.9-49.1 (vs 49.2 in February). This suggests a continued convergence of outcomes between the two-largest economies and the rest of the Eurozone. 

Services was confirmed to be weaker-than-expected following the German reading, printing at 50.4 (vs 51.1 cons, 50.6 prior). This suggests an average ex-France and Germany PMI of 53.3-53.4 (vs 53.9 prior) – implying continued outperformance relative to the two largest economies in the bloc.

Key notes from the Eurozone-release:

• “Growth was sustained in Germany during March, in part thanks to a renewed expansion in manufacturing output”…“ business activity in France decreased for the seventh month running”…“ a further solid increase in output was recorded in the rest of the Eurozone, extending the current sequence of growth to 15 months”.
• “New orders were down across both manufacturing and services, although the drop in the former was the least marked in the current sequence of contraction that spans almost three years. New export orders also decreased”.
• “Staffing levels were broadly unchanged in March amid a faster rise in services employment and softer reduction in workforce numbers at manufacturers. The stable picture for employment overall was recorded despite further falls in staffing levels across the euro area’s two largest economies, Germany and France. The rest of the Eurozone posted a solid expansion in workforce numbers, and one that was the most pronounced since June last year”
• “The rate of input cost inflation softened in March”…“ The slowdown in inflation was centred on the service sector, although here the rise was still sharp”.
• “Selling prices also increased at a slower pace at the end of the first quarter” … “Germany posted a softer rise in charges during March, while rates of inflation in France and the rest of the Eurozone were unchanged from February”.
• “French companies were pessimistic about the prospects for growth, but German firms were more bullish than in February. Strong confidence was again recorded in the rest of the euro area, albeit with sentiment easing from the previous survey period”.

The long end leads Bund ASWs away from session lows, with spreads vs. 3-month Euribor last -0.3bp to +0.3bp.

• Softer-than-expected German services PMI data outweighed the firmer-than-expected manufacturing equivalent when it came to market reaction, with the latter aided by the well-documented fiscal developments.
• Elsewhere, the DFA has confirmed that it will sell EUR92.5bln of debt in Q225 (EUR62.5bln in bonds and EUR30bln in bills). We had previously suggested that the release would come too early to account for additional defence/infrastructure spending and expect related increases in issuance to start to filter in from Q3, at the earliest.
• That was in line with the wider sell-side train of thought as well.