Daily analysis 19.01.2017

19.01.2017 13:17|Marcin Lipka

A few relatively hawkish statements from Janet Yellen’s testimony yesterday confirm the Fed’s message about three rate hikes in 2017. Minor chances for suggestions of a sooner fade out of the QE from the ECB. The zloty remains stable. Important data from Poland.

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

  • 14.00: Industrial production from Poland (estimates: positive 1.6% YoY).
  • 14.00: Retail sales from Poland (estimates: positive 6.5% YoY).
  • 14.00: Building production from Poland (estimates: negative 12.5% YoY).
  • 14.30: The ECB press conference.
  • 14.30: Weekly jobless claims from the USA (estimates: 252k).
  • 14.30: Construction permits and initiated investments in the American real estates sector (estimates: 1.22 million and 1.19 million, respectively).

Significant “few”

Yesterday’s testimony from Janet Yellen was interesting. And this was not because of the fact that the American economy is near the full balance level. This has been repeated in basically every testimony from the FOMC members. The matter of gradual rate hikes was also unlikely to cause an increase in the dollar’s value yesterday.

In our opinion, the most significant message from yesterday’s testimony, was the following statement: “That said, as of last month, I and most of my colleagues - the other members of the Fed Board in Washington and the presidents of the 12 regional Federal Reserve Banks - were expecting to increase our federal funds rate target a few times a year until, by the end of 2019.”

The most significant part of the above sentence is “a few.” Of course, this may as well suggest “two.” However, we think that “a few” was used to define a larger number, because the Fed has usually used the term “a couple” to define “two.” Another crucial element is the fact that Janet Yellen included herself among those, who expect three rate hikes each year until 2019. This may emphasize that the FOMC chair confirms expectations from the entire Committee.

Yellen’s statements are consistent with the Fed’s hawkish message. Yesterday, we wrote about a less dovish testimony from Lael Brainard. Moreover, a few days ago we took note of an increasing amount of suggestions from the FOMC representatives regarding reduction of the Fed’s balance (which will most likely be based on ceasing re-investments of mature treasury instruments.)

The reaction of the USD/JPY to Yellen’s testimony was relatively intense and the pair increased a few percent in a relatively short period of time. Moreover, strengthening of the dollar caused the EUR/USD to depreciate after 9.00 PM. However, the reaction on this pair was weaker, because some of investors most likely expect hawkish suggestions from the ECB. Nevertheless, the Federal Reserve’s attitude may suggest a more steep path of monetary tightening. This increases the chances for the dollar’s appreciation, especially when the matters regarding fiscal stimulation become clear.

ECB meeting

The market has been speculating about potential scenarios of Mario Draghi’s press conference. In our opinion, there are minor chances that the ECB would deliberately suggest the QE fade out before the end of 2017.

It seems most likely that Draghi’s comments will confirm his attitude from December. Any suggestions regarding risks, which are related to growing inflation, will most likely be denied by Draghi. Potential arguments from the ECB chairman are low baseline inflation (below 1% YoY) and the economy, which still requires a support from the monetary policy. Therefore, the euro should wear-off after this press conference.

Important data from Poland

The EUR/PLN’s attempts to reach the area of 4.35 has not been bringing any results, for the time being. The euro has yet again returned to the middle of the range of 4.35-4.40. However, this afternoon we will not only receive the American data, but also macroeconomic data from the Polish Central Statistical Office.

There is a large chance that retail sales may exceed optimistic expectations (positive 6.5% YoY). This is especially taking into consideration the ACEA data regarding a 17% YoY increase in registering now cars in Poland, in December. There are more doubts regarding a rebound in the building production. Therefore, the expected 12.5% YoY decline may be larger and start a discussion regarding yet another delay in infrastructural investments, as well as to wear-off the PLN.



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