Polish hard macro figures continue to disappoint in May

Poland's industrial output and retails sales figures disappointed in May. Data showed a month-on-month decline (3.6 percent) in industrial production in May. In year-on-year terms, however, the growth has still remained relatively strong and its 12-month moving average (NSA) has been set just shy below the 5 percent measured in the recent months.

Poland inflation is inching up on external factors whereas retail sales remain rather disappointing. The recovery is still fragile, deflation still entrenched and risks connected with balance sheet adjustments of enterprises are flying high.

The labor market is improving further with more wage growth in the pipeline. Poland's wage growth was the strongest in past 13 months in April and wages grew by 4.1 percent Y/Y in May. This means that wages in the third quarter may grow at the fastest pace since the first quarter of 2012, and are likely to have a stabilizing effect on the monetary policy of the NBP.

Heading closer to the UK referendum date, the market was focused on offsetting the risk of domestic bond holdings exposure and sold the 10y assets down to 3.30 percent highest from early February 2016. Surprisingly, the shape of Polish yield curve did not change much as the front end of a curve followed the move.