Daily analysis 02.03.2016:
Better sentiment in the stock markets does not make the dollar stronger for the time being. The chances for an agreement between the oil producers are growing. The zloty remains stable to the euro. Comments from Chrzanowski of the MPC about the monetary policy.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 14.15: New workplaces in the private sector, according to the ADP data (estimations: positive 190k).
Optimism in the USA
Yesterday's session in the United States ended with a clear growth. The S&P 500 index increased by more than 2%, and is currently only 7% below its historical record, which was reached in 2015. Visible chances are also observed in the debt market. Profitability of 2-year treasury bonds are now at the level of 0.85%, while in the first half of February it was near 0.60%.
Changes in the market are also causing a significant increase in chances for hikes in the USA. According to the Bloomberg agency's calculations, the chances for hikes in the September meeting of the Federal Reserve, are currently exceeding 50%. There is approximately a 20% chance that there will be two hikes this year, and each one will amount 25 base case points. It is worth mentioning that just three weeks ago, the market hoped for a decrease in interest rates by the end of the year, rather than an increase.
Theoretically, such significant changes should support the American currency. However, this movement is slightly withheld by an improvement of situations in the emerging markets. These markets purchase previously overvalued currencies, and sell the dollar. Moreover, we will receive some significant readings from the USA by the end of the week. Today will be a publication of new workplaces in the private sector prepared by the ADP, and on Thursday it will be a reading of the services ISM.
The latter publication may be especially significant regarding the March decision of the Federal Reserve. Yesterday, the industrial ISM went further from the lowest level since the 2008/2009 crisis, but it did not manage to exceed the level of 50 points, which separates progress from regress. The PMI index for services sector, which is similar to but less acknowledged by American investors, depreciated below the level of 50 points in the initial reading from February. If tomorrow's ISM data confirm this trend, fear will return to the market, and the chances for hikes will most likely be reduced.
On the other hand, an optimistic scenario of the situation's development in the American economy is still more likely. Thus, if today's ADP is close to 200k, tomorrow's ISM does not reach the limit of 50 points, and Friday's publication from the Labor Department appears consistent with expectations, the topic of hikes in the United States will return quite quickly.
This fact may overlap the next week's ECB meeting, of which the decision regarding easing of monetary policy is most likely to be made. As a result, the market will recall a crucial element creating changes in the currency market, which is the divergence of interest rates. This scenario assumes that the EUR/USD may test its 13-year minimum near 1.0500 already in March.
Oil – is the chance for an agreement between the producers increasing?
Yesterday's statements from the Russian minister for energy, may suggest that the agreement regarding freezing production of oil by its producers at its current level, is becoming more likely. The TASS quoted Alexander Novak saying that, “the decision regarding the stabilization of production was confirmed by 15 countries, which produce 73% of global oil supply.” Moreover, Novak claims that, “the decision should be effective without Iran.”
On the other hand, the Wall Street Journal referenced a Monday interview with the Nigerian minister of oil for the CNBC television. Emmanuel Ibe Kachikwu claimed that the chances for freezing the production are very high.
Due to increased oil mining by Iran, a hypothetical agreement will probably not balance demand and supply very soon. However, it will cause a lower than expected mining in Saudi Arabia during summer, among others. Thus, it may cause the oversupply of oil to decrease more quickly. This, on the other hand, is most likely to clearly reduce a chance for a return to the recent minimum, and support the pro-growth sentiment.
Stabilization on the zloty
The EUR/PLN pair is stabilizing near the level of 4.33. It is supported by a good global sentiment, and expectations regarding easing of the monetary policy in the euro zone. Slight volatility of the zloty should also be supported by the comments from the MPC members. Bloomberg agency quoted a new MPC representative, Marek Chrzanowski, who told the Rzeczpospolita journal that he does not see a need to cut interest rates, as a response to the ECB plans of easing the monetary policy.
If the above matter is also supported by the majority of the MPC, it will be quite a significant sign. It increases chances for sustaining a disproportion in interest rates between the euro zone and Poland, and also between the zloty and the forint. The Hungarian Central Bank suggested easing of the monetary policy, in case of additional actions from the ECB.
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