In 2019, the return on long-term bonds dropped rapidly. In the 5-year market, the returns went down even by 47 bp to 1.83%, and in the 10-year market by 72 bp to 2.13%. The short end of the yield curve showed greater stabilization. Quotations of 2-year bonds remained near the NBP reference rate, which stood at 1.50% over the entire period. The domestic interest rate market received strong support from a lower supply of Treasury securities, as a result of an improvement in public finances.
Positive macroeconomic environment was also due to moderate inflation pressure, the central bank’s promises of no changes to monetary policy in the long term, as well as the widely-forecasted moderate slowdown of the Polish economy in subsequent years. Indirectly, the valuation of Polish Treasury securities also reinforced changes on the base markets, where concerns about the slowdown of the global economy as a result of the escalation of the trade war between the USA and China became more prevalent.
Weaker macroeconomic data and deteriorating moods among entrepreneurs worldwide forced the European Central Bank and the Fed to loosen monetary policy, causing a sharp drop in the yield on Treasuries on the base markets. Returns on 10-year German bonds went down in the entire period by 43 bp to -0.43%, and American ones by 78 bp to 1.91%.
In 2019, the US dollar strengthened against the Euro from 1.15 to 1.12. The economic downturn in the Euro zone and escalating trade dispute between the USA and China until the end of September weakened the Euro against the US dollar to 1.09, while the EU currency partly recovered its position in the last quarter. The Fed’s launch of the purchase of short-term Treasury bills (conducted in mid-October) and information about the first phase of a trade agreement between the USA and China (in mid-December) enabled the EUR/USD exchange rate to recover to 1.12 by the end of the year. PLN started the year at a level of 4.29 against EUR, and ended at around 4.26. Slowdown in the Euro zone did not affect the rate of economic growth in Poland, as a result of which in the first months, the PLN exchange rate remained relatively stable.
PLN dropped considerably against EUR, to approx. 4.40 in the third quarter, as a result of an escalation of the trade dispute between the USA and China, and concerns regarding the effects of a judgment of the EU Court of Justice concerning mortgage loans in convertible currencies on financial stability of certain banks. Nevertheless, after short-term stability, PLN started to recover, which was partly due to a higher probability of a trade agreement between the USA and China, the reduced risk of a “hard” Brexit, and the slightly better moods in the global economy, which supported the emerging markets’ currency baskets.
2019 was not a successful year for the Warsaw Stock Exchange, although the economic conditions on foreign stock exchanges were good. The WIG index recorded a slight increase, and WIG20 showed a loss of 5.6%, whereas the main world indices brought two-digit profits, often in the range 20-30%. Increases on the global share markets resulted mainly from a deep policy change of the main central banks. Concerns about an economic slowdown forced the US Federal Reserve and the European Central Bank not only to withdraw from their planned interest rate increases, but even to reduce rates in combination with other monetary activities, such as e.g. resuming the purchase of assets. This led to a relatively higher attractiveness of shares as a class of investment assets and was generally received by the market as an action contributing to increased economic activity, which ultimately turned out to be better than the pessimistic forecasts.
Investors’ moods were not affected even by the permanent turbulence related to Brexit and the trade conflict between the USA and China. In Poland, despite an increase in GDP at a rate of 4%, which was a very good result compared to other countries, the stock exchange performed poorly. This was largely due to the fact that in the main indices the banking and power sectors have dominated, being perceived by investors as too risky in light of the problems related to mortgage loans in convertible currencies and uncertainty as to the official electricity prices in view of the growing production costs.