Situation on the financial markets

2019 was a favorable year for investors on global financial markets. Most asset classes brought a positive rate of return. Despite temporary fluctuations in Q2 and Q3, the prices of equities on developed markets were increasing. The yields of US and German treasury bonds showed a significant correlation throughout the year. The yields of 10-year US Treasuries and 10-year Bunds were dropping uninterruptedly from the beginning of the year to the beginning of September. Subsequently, they increased, but not deep enough to break the level at which they started the year. The yield of German Bunds was at the historical low this year.

For most part of the year, trends on the financial markets were swayed by news of heightened tensions in global trade relations, the risk of a disorderly Brexit and indications of decelerating economic growth in the world’s major economies. In 2019, the US trade policy became more austere, especially towards China, which resulted in bilateral tariff hikes. This had an adverse effect on the dynamics of global trade and resulted in a worsening of the business climate in economies dependent largely on exports, including Germany, which in 2019 just missed technical recession. The rate of GDP growth in the US, China and the euro area began to subside. The concerns about upcoming recession were also fueled by the yield curve inversion in the US, which in the past was quite a precise indicator of an approaching recession. From March 10-year US treasury bonds offered lower yield than short-term 3-month bonds and this status quo lasted till October. Only the end of the year reduced the uncertainty in the context of key risks. The US and China started to work on the first phase of a trade agreement, which entered into force in January 2020. In addition, the danger of a no-deal Brexit disappeared.

Key central banks were not passive in the fact of the risks for global economic growth. The US central bank (Fed), which still by the end of 2018 predicted two interest rate hikes, closed 2019 with three rate cuts. The European Central Bank (ECB) reduced the main deposit rate and resumed the asset purchase program, finished only in 2018. Additionally, to help European banks in the face of negative interest rates, the ECB introduced a mechanism for exclusion of some bank reserves from the negative interest.

The Polish equity market closed 2019 practically without any changes, being in terms of the rate of return one of the weakest indices in the world. In 2019, the WIG index yielded a rate of return of +0.3%, but the WIG20 index lost 5.6%. Against the backdrop of increases in global indices and the very good economic situation in Poland in the first half of the year, all of the country’s major stock market indices grew until the end of March. The beginning of April roughly marked a synchronized descent in all stock market indices. By the end of the year, certain differences appeared in the paths followed by large and small cap indices. While in the last months of the year, the WIG20, the blue chip index, was declining, the medium and small company indices of mWIG40 and sWIG80 were improving in this period. Compared to other major sectors, in 2019 the telecommunication industry was outstandingly strong, while all other sectors recorded negative rates of return.

WIG and WIG20 indices

Medium-term and long-term treasury bond yields in 2019 dropped. The performance of Polish 10-year treasury bonds was largely correlated with changes in the yields on 10-year bonds on the core markets. At the same time, during the year the spread between Polish and German 10-year treasury bonds tightened by 26 basis points, which resulted partly from the robust fundamentals of the Polish economy against the backdrop of European economies. Throughout 2019, the yields on 10-year treasury bonds slumped by 78 bps from 2.85% to 2.07%. The yields on 5-year treasury bonds declined by 48 bps and stood at 1.81% at the end of the year, while the yields on 2-year bonds increased by 16 bps to 1.50% during the year. The yield of Polish debt treasury securities with a one-year maturity increased by 7 bps, reaching 0.98% at the end of the year.

Treasury bond yield in 2019

In 2019, from the beginning of the year until the end of September, a clear trend transpired on the main currency markets with the US dollar strengthening markedly against other major global currencies. In the light of decreasing concerns about a disorderly Brexit, the British pound appreciated by the end of the year. Eventually, the USD/EUR exchange rate stood at 1.12 at the end of 2019, which means a 1.8% decline compared to the end of the previous year. In the same period, the Polish zloty weakened against the US dollar and strengthened against the euro. Between the beginning and end of 2019, the US dollar appreciated against the Polish zloty by 1.0% to PLN 3.80, while the euro was worth PLN 4.26 at the end of 2019, down 1.0%. The Polish zloty clearly weakened against the Swiss franc by 2.7% (the PLN/CHF exchange rate increased to PLN 3.92).

PLN exchange rate