Situation on the financial markets

The main trends on the global financial markets developed with the euro zone exiting a period of recession in the second quarter and the continuation of US economic recovery, which was sealed in June with the announcement of tapering “quantitative easing”. This turnaround in the Fed’s monetary policy was a shock to the global financial markets, especially for the debt market, initiating an upward yield trend from the middle of 2013. The flow of capital from the bond market and a better outlook for economic growth promoted higher share prices.

After the banking crisis in Cyprus, which resulted in a temporary increase in unrest on the global financial markets in early 2013, rising major world stock exchange indices were prevalent.

2013 was not unambiguously successful for the Polish stock exchange. Although the value of the broad market index, WIG, rose by 8.1%, the index of the largest and most liquid companies, WIG20, dropped by 7.0%. Such an unusual situation last took place in 2002. The decline in the WIG20 index could have been the result of concerns about the outflow of foreign institutional investors in response to the turnaround in monetary policy in the US. Likewise, the uncertainty as to the scale of further investments of Open-ended Pension Fund (OFE) capital on the Polish stock exchange, in the light of the amendments introduced by the government, could have had an adverse effect on the stock market.

Treasury bond yields in 2013

In 2013, the Polish treasury bond yield curve clearly steepened. The difference between the yields of 10-year and 1-year treasuries increased by approximately 100 basis points. An important factor in the decline in the yields of shorter maturity instruments was the reduction in the NBP reference rate in 2013. For 1-year instruments, this decline amounted to approximately 40 basis points. The yields on treasury bonds with longer maturities also started to increase in June 2013, which coincided with both the final phase of interest rate cuts by the MPC and the Fed’s turnaround in monetary policy. It seems that this latter factor, in particular, was responsible for the change in the market trend of Polish treasury bonds. Finally, 5-year and 10-year bond yields increased in 2013 by approximately 60 basis points.

Up to the middle of 2013, the zloty weakened against the euro and the US dollar. However, in the second half of the year, the Polish currency strengthened, despite announcements of tapering “quantitative easing” in the US, reinforcing the risk of capital outflows from emerging markets. The zloty exchange rate was supported very strongly by the reduction in the current account deficit in the balance of payments, placing Poland among stable economies. Finally, over the whole of 2013, the zloty weakened against the euro, although more strongly compared with the end of 2012 (1.4%) than in monthly terms (0.3%). However, the Polish currency strengthened against the US dollar (by an annual average of 3.0% and 2.8% compared with the end of 2012). Additionally, the zloty strengthened by 0.2% against the Swiss franc compared with the end of 2012.

PLN exchange rate in 2013