Afternoon analysis 28.09.2016:
The interest of particular OPEC countries decrease the likelihood of an agreement during the International Energy Forum. The zloty remains stable before the decision regarding changes within the ministries in Poland.
The Cartel countries are not able to imply a joint standpoint regarding limits in mining. However, they agree that low oil prices are harmful. The agreement already seemed unlikely before the forum. This is due to particular countries showing a will to increase their mining. Moreover, the OPEC countries have not been able to achieve an agreement regarding this matter for over a year.
One of these countries is Iran. This country has relatively large production powers. According to Bloomberg, Iran would like to increase its production from 3.6 million to 4 million barrels per day. The country’s minister announced that any agreement his country would sign has to guarantee them a possibility of achieving this level. On the other hand, Libya’s minister declared that his country wishes to be dismissed from any agreement, because it wishes to gradually increase its production.
Despite the lack of any agreement, Bloomberg claims that the Saudi Arabian Minister of Energy, Khalid Al-Falih decided to meet Iran, Libya and Nigeria halfway by stating that these countries, “should produce at the maximum reasonable levels.” Even though this statement does not contain any specific information, it seems that Saudi Arabia is trying to build a base for the agreement, which may be achieved during the official OPEC meeting in November. A press conference during the forum will be held this evening.
Zloty is stable before changes within ministries
Today’s main information was the announcement regarding changes within ministries, which will be presented during Prime Minister Beata Szydło’s press conference. The market is mostly focusing on potential changes within the Ministry of Finance (possible dismissal of minister Paweł Szałamacha). The zloty has been stable at the level of 4.29 today. Most likely, only significant changes in activity of ministries could wear-off the zloty above the 4.30 level.
Esther George’s testimony is scheduled for tonight. She has a right to vote this year and her statements from before the Fed’s meeting on September 21st were indicating that the current, too-low interest rates may lead to large risks. We don’t expect a change in her views, but investors will search for clues regarding rate hikes in December.
Tomorrow, we will have testimonies from two Fed members who have a right to vote in 2017 - Neel Kashkari and Patrick Harker. Kashkari is a member of the dovish faction, and after the Fed’s meeting in September he claimed that leaving interest rates unchanged was a good decision because a risk of a low inflation is larger than the risk of a high inflation. However, he would vote in favor of rate hikes in three cases – a significant increase in inflation or inflation expectations, a rapid decrease in unemployment rate or an improvement in the labor market. On the other hand, Harker is more hawkish and he expects inflation to return to its target in 2017. He also claims that fund rates will achieve the 3% level by the end of 2018.
Janet Yellen’s testimony is scheduled for tomorrow evening. The FOMC chairwoman will have a video-conference during the banking minority forum. Her recent statements were relatively dovish. Only a clear suggestion regarding rate hikes in December would impact the dollar (the EUR/USD is currently at the level of approximately 1.12).
Tomorrow, we will also know the American macro data regarding the final reading of the GDP increase in the second quarter (consensus 1.3% vs 1.1% in August), weekly jobless claims consensus (260k vs 252k last week), and the number of houses sold (consensus 0.3% vs 1.3%). We don’t expect this data to impact the dollar significantly, because it will most likely be consistent with the consensus. The GDP reading is the third in a row, jobless claims have been stabilizing near the 260k level over the past few weeks and the number of houses sold is an index of significant volatility.
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