Daily analysis 22.09.2015:
Comments from Lockhart and Praet are confirming central banks' course. Did Nowotny reveal the FOMC fears? Wednesday's Chinese data are expected to be widely commented on. The zloty remains fairly stable taking into account the volatility on the EUR/USD.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- Tomorrow at 03.45: Preliminary PMI reading from Chinese manufacturing (survey: 47.5 points).
- Tomorrow at 09.00: Preliminary PMI readings from French manufacturing and services (survey: 48.6 points and 51 points respectively).
- Tomorrow at 09.30: Preliminary PMI readings from German manufacturing and services (survey: 52.6 points and 54.6 points).
Important Nowotny's comments
Yesterday there was another set of comments from central bankers. The market was especially waiting for Dennis Lockhart’s speech. In a document published on the Federal Reserve bank in Atlanta it is hard to find any hints regarding the future of the Fed's decision. Lockhart only strengthened the view that FOMC is expected to hike the benchmark this year.
A bit more news we can find in “The Wall Street Journal” and its comments from a Q&A session with Lockhart. According to the Journal “with little more than a month before the next Fed meeting – a tight period”, he said – it will be hard to have enough information in hand to decide on raising rates.”. It may mean that even if officially October is “open for a rate rise” we can assume that the December meeting looks much more probable.
Not much new news came from Peter Praet. The ECB governing council member, during his comments in Geneva, suggested that the central bank is going to act if the inflation goal will be pressured. On the other hand, Praet didn't want to sound more pessimistic regarding the eurozone due to the fact that there is still not enough data from EM economies.
It is possible, however, that a much more important message came from Ewald Nowotny. The Austrian ECB member recalled a broad discussion within the group of European and US monetary policy makers, which took place last week at Bank for International Settlements.
According to Nowotny, the Fed official was stressing that their decision is not one move but the beginning of monetary tightening. The basic thought was, “it would be easy to do it now, but what are we going to do in three months and what expectations does it raise for next year?”.
This issue is, of course, well known to the market. None of the central banks want to hike the benchmark by 25bps and then finish the tightening. But on the other hand, the Fed has suggested for months that the pace of hikes would not be at a defined pace, there may be longer pauses and even some cuts. The Fed has also claimed that the first decision is not that important because the whole speed of tightening matters.
From Nowotny's comments the situation looks different. It is possible that the Fed is really concerned that the first move can significantly raise the future rate expectations by the market. So, if the hike is decided in December the reaction can be strong and even Nowotny's comments can contribute to future nervousness.
The foreign market in a few sentences
In the short term the market should be focused on the Chinese data and especially on the PMI reading which is scheduled for tonight. The index falling below the 47 level should put some pressure on the dollar and slightly strengthen the EUR/USD, despite the fact that softer publications from Beijing not only push back the hike in the States but also increase calls for more QE from Europe. On the other hand, better Chinese data should give some ground to the dollar.
If the Chinese data fail to set a direction, then it is worth analyzing the European PMIs. It would be interesting how services and manufacturing managers see the approaching 6 months after a few weeks of market turmoil. Surveys are showing some deterioration in the situation but if the actual number turns out to be below the expectations investors should expect a slide on the EUR/USD even below 1.11.
The zloty sensitive to the sentiment
The EUR/PLN rebounded from the 4.18 range. A slight deterioration of sentiment on the PLN was caused mainly by a significant slide on European equities. In such an environment even calls for more dovish ECB and later monetary tightening in the US are not able to give a boost to the local currency.
Regarding the Chinese data the zloty may react in a more calm way than other major currencies. Only a significantly weaker reading from Beijing should push the PLN lower. On the other hand, better than expected readings from Germany and France turn out to be worse than expected, this may have a much stronger impact on the PLN.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate:
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