PLN: Zloty Loses Shine, Geopolitics At Forefront
EUR/PLN last deals at 4.1692, down 76 pips on the session, trending sideways above the psychologically significant 4.15 figure. A break below there would support bearish sentiment, while bulls look for a rally towards the 50-EMA (4.2218).
- The prospect of ceasefire in Ukraine supported regional assets at the beginning of the year but continued uncertainty around the outcome, considering the Trump administration's latest communique surrounding Ukraine and CEE. The FT reported that during the recent round of negotiations with the US, Russia demanded the withdrawal of NATO forces from the bloc's eastern flank, but the US refused. However, the news has inspired concerns among CEE leaders about potential concessions that the US could make to Russia at their expense.
- ING wrote this morning that the potential for further PLN appreciation seems to be nearing exhaustion. They expect stabilisation within the 4.15-4.18 range going forward and consider it more likely that the pair would break above 4.18 than that it would breach 4.15. Millennium Bank wrote that EUR/PLN should stay within the 4.10-4.20 range. Both desks agreed that geopolitical factors may be decisive for PLN price action.
- POLGB yields sit a tad lower across the curve. The Finance Ministry is planning to sell PLN2bn-4bn of 52-week T-bills today, which comes on the heels of a decent enough POLGB offering on Wednesday.
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EGBS: Spreads Continue Recent Tightening, Some Near Key Levels
Zooming out, the general theme of spread tightening seen over the last week or so has been driven by several factors:
- Notable demand at the early round of ’25 EGB syndications (which included long end OAT supply).
- Continued narrowing of ASW spreads in Germany (linked to German fiscal/supply risk, as well as increasing free float).
- Dovish ECB repricing countering some of the early January hawkish adjustment
- Fresh record highs across some of the major European equity indices.
- An associated move lower in EUR implied FI vol. metrics.
- Some of the major EGB/Bund spreads trade near key levels.
- OAT/Bunds once again struggles to trade meaningfully below 75bp, with French fiscal and political risks continuing to limit spread tightening below that level, at least for now.
- BTP/Bunds near multi-year lows, last ~107bp.
EQUITIES: Estoxx large Put calendar spread
SX5E (21st Feb/21s Mar) 4700/4800p calendar, aggressor is the seller at 17.25 in 37.5k.
CROSS ASSET: Lack of FX Reaction Suggests Lagarde Not A Key Driver Of EQ/FI Bid
President Lagarde’s interview with CNBC did not come across as particularly dovish compared to recent GC commentary or her prior interview with the FT on December 23. Although EUR STIRs have rallied alongside core FI over the past hour, the lack of reaction in EUR FX suggests Lagarde’s views (and ECB monetary policy more generally) have not been a key driver - as noted in earlier commentary.
- Asked about how appropriate the prospect of four 25bp cuts by the June meeting is, Lagarde did not provide a view: “I leave it to them [other GC colleagues] to sort of anticipate and play that game of, you know, so many, at which pace etc”.
- Global equity futures have rallied alongside core FI over the past hour, likely factoring into earlier peripheral/semi-core outperformance versus Bunds.
- Price action here not driven by specific newsflow or headlines, but provides another example of the jumpy short-term nature of markets this week - with the eventful first few days of the Trump administration helping to underpin intraday vol here.
- Major EGB futures have continued to move away from earlier session highs, with Bunds now +8 ticks at 132.02 (vs an intraday high of 132.22).
