Zloty Stabilises, POLGB Yields Reverse Initial Losses As Market Digests CJEU Opinion

EUR/PLN changes hands +177 pips at PLN4.7771 as the dust settles after the release of a CJEU advisor's opinion on an FX-loan case considered by the EU's top court. The pair had a look above yesterday's peak but is struggling to challenge recent four-month highs.

• POLGBs gradually reversed their initial strength and now sit 8.4-12.4bp higher, while curve runs slightly steeper. Should the verdict of the CJEU follow the guidance of the court's legal aide, the capacity of Polish lenders to absorb POLGB issuance might be reduced amid the need to allocate more funds for claims related to the FX loans.
• The WIGBANK Index fell 4.3% peak-to-trough in reaction to the statement from the CJEU's advisor. The index has now trimmed losses and sits ~1.6% below yesterday's close, after finding support in its 50-DMA. Weakness in Polish lender stocks have weighed on the benchmark WIG20 Index, which is ~0.8% worse off at typing, also supported by its 50-DMA.
• Poland's financial watchdog KNF and banking lobby ZBP refused to comment on the CJEU's opinion, noting that they await the final ruling expected later this year. Head of state development fund PFR Pawel Borys warned that the opinion raises a risk of a "serious economic crisis" and urged the government and state agencies to come up with mitigation measures.
• Judging by the market reaction, it appears that participants were not prepared for the outcome. Some may have been taken off guard by the general orientation of the opinion, while others may have been surprised by the extent to which it favours consumers.
• In particular, the CJEU aide's opinion implies an asymmetric treatment of claims to interest for the use of capital in cancelled loan contracts. Attorney General Anthony Collins advised that "after a mortgage contract is declared invalid due to unfair terms, consumers can pursue claims against banks beyond the reimbursement of monetary benefits; banks do not have this right."