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Daily analysis 01.02.2016

1 Feb 2016 13:29|Marcin Lipka

Chances for new hikes in the USA decrease, but possibility of recession on the other side of the ocean increases. The Chinese industrial PMI remains below the level of 50. Wednesday's publication from services sector will have great significance. The zloty is stronger, despite the worse than expected PMI readings from Poland.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Expenses and incomes of the Americans for December (estimations: respectively +0.1% m/m, and +0.2% m/m).
  • 14.30: The PCE inflation for December (estimations: +0.6% y/y; with exclusion of fuel and food +1.4% y/y).
  • 16.00: The ISM index of the American industry for January (estimations: 48.5 points y/y).

March is becoming less likely

On Friday the American stock market indexes ended the session with solid growths, and we observed a visible appreciation on the dollar which took the EUR/USD below 1.0850. Despite this, the chances for another monetary tightening in March are quite small. Basing on the Bloomberg's calculations, the probability of hikes is only 14%.

What is more interesting, the same estimations show a higher likelihood (55%) of interest rates remaining within the range of 0.25-0.50% than higher, until November 2016. Previously they indicated exactly 50% for an increase in interest rates in March, and two more hikes before November to the range of 0.75-1.00%.

Sentiments of the economists surveyed by the Financial Times also changed quite dramatically. According to the study published on weekend, 51 surveyed economists claimed at the end of December that there will be 3 or 4 hikes in 2016. Currently they expect only 2 or 3 hikes, 0.25% each.

Also, the opinions about the American economy clearly deteriorated. Currently, economists surveyed by the Financial Times claim that there is 20% of chances that the USA will suffer from recession within the following 12 months. In December it was expected that there is 15% of chances for such risk, and not within one, but two following years.

Mostly the abroad events have a significant impact on a clear change in attitude towards the American economy and their interest rates. However, we need to add that the recent GDP data and orders for durable goods are probably also below the previous expectations of the Fed representatives. On Friday John Williams (a neutral member of the Federal Reserve, without a right to vote this year) said that he “minimally” decreased his expectations towards the economic growth. Moreover, he claimed that the Fed “can slowdown the tightening, if the situation deteriorates”.

Thus, the available data show that there are relatively small chances for the monetary tightening in March. And there is a question: why are we not dealing with a clearer wear off on the dollar due to a limited probability of fulfilling the previously expected pace of hikes?

However, the lack of the USD depreciation comes from the fact that the other central banks either increase stimulation (the BoJ on Friday), or suggest doing so (the ECB on its meeting in January), or slowly withdraw from their previous announcements of monetary tightening (the Bank of England). As a result, the general balance of monetary policy's impact remains the same, in comparison to the previous scenario. This situation may change, if it appears that the global condition improves shortly after an increase in the ECB stimulation, and the Fed returns to the monetary tightening. If this happens, the dollar may regain the appetite for appreciation, and even take the EUR/USD below the last year's minimums within the limits of 1.05.

Series of the weak PMI from China

Once again the weak PMI readings from China landed on the market during the Asian session. The industrial Purchasing Managers' Index examined by Markit and Caixin is below the limit of 50 (it separates progress from regress) for 11th month in a row. In January it was 48.4 points. According to the above mentioned companies it shows a “further moderate deterioration in situation of the Chinese industry”.

The official PMI from the industrial and services sectors was also weak. According to the National Bureau of Statistics China (NBS) it was respectively 49.4 and 53.5 points. Both readings are closest to the lowest levels from 2009. The Wednesday's publication from the services sector prepared by Markit and Caixin will be very significant in context of the global sentiment. If it appears to be lower than 50 points (in January 50.2), this would be the worst reading since 2006.

PMI is weaker, but zloty is stronger

This morning appeared to be unfavourable for the zloty. The industrial PMI for Poland was clearly below expectations (50.9 vs 51.8 points). The study was prepared by Markit. The company writes in its official announcement that “in January the pace of increase in the amount of new orders was lower, and was the weakest since August”. Further on it says that “the same trend has been observed within production, which grew at the slowest pace for five months”. On the other hand, Markit claims that “a solid increase in employment was the most positive result of the recent study for the Polish industrial sector”.

Despite the fact that the PMI was week the zloty enforced before noon, and tested the level of 4.40 on the EUR/PLN. The zloty also gained approximately 0.3% to the recently strong Hungarian forint. Perhaps a part of investors decided to take advantage of overvalue on the bonds market and the weaker zloty, to involve in the market of treasury bonds (we took note of such possibility on Thursday). In general, however, in order to see a clearer appreciation of the PLN, we will probably have to wait for an improvement in global sentiment and better publications from the country.


1 Feb 2016 13:29|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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