Daily analysis 19.01.2016

, author:

Marcin Lipka

Despite some weaker data from China, the sentiment on capital markets have improved. Polish MPC members try to assure that no interest rate cut is expected. The EUR/PLN remains close to 4.45 level.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • No macroeconomic data which may significantly affect the analyzed pairs.

Less fear from China

During the night China published key economic data. Overall the readings were slightly weaker than market consensus presented by Bloomberg, but generally the country still expands at a fast pace.

Chinese GDP rose in 2015 at 6.8% level slightly below the consensus at 6.9%. Below expectations was also the retail sales (11.1% y/y vs 11.3%y/y) and the industrial production (5.9% y/y vs 6.0% y/y). Fixed investments were also below the Bloomberg survey (10% vs 10.2% y/y).

Despite the fact that yearly GDP reading was the lowest in 25 years the expansion still seems to be relatively solid noting some deflationary environment and hostile economic conditions in some major emerging markets. There are also speculations that if the growth weakens further and the perspective falls below the 6.5% long term goal the authorities may push for more fiscal and monetary stimulus.

Readings from China helped to push European capital markets higher and the US future contracts are rising around 2%. The dollar is also gaining on the broader market, but the slide on EUR/USD may be slightly muted due to Thursday's ECB meeting. Despite that the odds for decisions are quite low the conference may bring some additional volatility. Some participants expect that comments regarding further loosing the monetary policy may occur as early as in two days and others claim that it is too early for any actions noting that in December the MPC modified QE program.

The rating cut still weight on the zloty

The EUR/PLN is currently quoted around 4.45 level. It means that around half of the move was reduced after the rating was cut. However, it is worth noting that the zloty is still around 4% weaker to the forint since the beginning of the year and the HUF is the strongest to the zloty since more than two years.

Regarding the zloty there is some offensive actions from domestic MPC. Today governor Belka told on TVN 24 BiŚ that regarding Polish currency “he will do all he can to keep the zloty stable”. Additionally he also stressed that “won't even mention rate cut due to zloty volatility”.

Concerning the cut professor Glapinski was also skeptical. The current MPC members told Bloomberg that “any even only 25 bps cut” would be unnecessary. Glapinski also told the news agency that he is “the most probable” candidate for the governor. Later his comment was modified that it is “too early” to call him a candidate.

Additionally in midday comments for PAP professor Kropiwnicki, the newly appointed MPC member told that there is “no need to cut rates in the near future”.

After comments from MPC member the odds for interest rate cut should be reduced. This message should also calm the zloty especially in the moments when global sentiment remains neutral. Regarding the domestic readings it is worth to note data scheduled on Thursday – industrial production and retail sales. They will be much closer analyzed than it used to be in previous months.

Lower zloty valuations are expected to remain especially that 10-year bonds are around 15 bps above readings before the rating cut. Additionally the spread between 10-year German and Polish bonds remain around 260 bps, close to the 18 months highs.

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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 the written permission from Sp. z o.o is prohibited.

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