Daily analysis 27.10.2015:
Stabilisation on the EUR/USD before this afternoon's publications from the United States, and Wednesday's Federal Reserve meeting. The political situation in Poland clears up. The only question that remains, is about the budget and the ministry of finance.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 13.30: Orders for durable goods (estimations: minus 1.5% m/m; with exclusion of transport 0.0%).
- 14.00: Index of changes on prices of real estates by S&P/Case-Shiller 20 (estimations: +5.1% y/y).
- 15.00: Index of consumers' sentiment for October by Conference Board (estimations: 103 points).
Publications from USA
After last week's events, the main currency pair is in the central area of the 1.10 level. It is very possible that today's reading from the other side of the ocean will also not clearly change the quotations of the EUR/USD. This afternoon's publications do not have such power, and additionally, the Federal Reserve meeting ends tomorrow.
Basically all data (orders for durable goods, prices of real estates, and consumers' sentiment) would have to be clearly below the prognoses, in order to cause an increase in the EUR/USD above 1.11. On the other hand, it is also unlikely that the market participants would risk the main currency pair to go below 1.10. There is a bigger chance that Conference Board may cause appreciation of the dollar. However, it should not be more than 50pbs.
If the consumers' sentiment crosses the consensus by 1 point, and reaches the level of 104 points, it would be the highest reading since mid-2007. It is the future financial condition of the Americans that is the main argument for an increase in interest rates on the other side of the ocean.
Fed should be neutral
Looking at the recent announcements from the Federal Reserve and data from the past weeks, it is most likely that the condition of the labour market will be evaluated as slightly worse. However, the general description of changes in employment will remain positive. Also, the condition of households, as well as the real estate market will not be visibly modified.
The situation should look similar in the case of price indexes, and the constantly negative impact of the trade balance. An element which could be favourable for the hawks and dim the slightly worse description of the labour market, is the situation in the financial market. Since the last FOMC meeting, S&P 500 increased by approximately 6%, and practically worked off all the losses related to the commotion on the emerging markets. During the past 6 week, after suffering the most in the months prior, the situation on the currencies of the emerging markets improved. The risk of a hypothetical, deeper than expected slowdown in China, decreased.
As a result, the Fed should try to compose the announcement in a way that sustains the possibility of hikes in December, but also explains the postponement of the monetary tightening in the case of unique events. Considering the market's expectations and the comments from the main investment banks, this should cause the neutral reaction of the dollar, or its slight enforcement.
Questions about the budget and the ministry of finance
The political situation in Poland begins to clear up. PiS will govern independently. „Rzeczpospolita” writes that, according to the official data from the State Electoral Commission the party lead by Jarosław Kaczyński has 235 places in parliament. In the forthcoming days, the market will be wondering to what degree the budget for 2016 will be modified, and who will be the new minister of finance.
The market speculates about four names for this post – Morawiecki, Szałamacha, Kluza and Kowalczyk. The first three names should be received well by the market, and be neutral for the zloty. Currently, it seems that Paweł Szałamacha has the biggest chance to become the minister of finance. He is pointed out by „Gazeta Wyborcza”, as well as „Gazeta Polska Codziennie”.
On the other hand, “Rzeczpospolita” writes in an article entitled, ”Co na pierwszy ogień?” (“What’s first?”), that Henryk Kowalczyk, “according to our information can be the minister of finance in the new government”. If this information appears to be true, it could have a negative impact on the condition of the zloty. It could happen for two reasons. Firstly, the deputy Kowalczyk already caused a wear off on the PLN one week ago, with his comments regarding the monetary stimulation of the NBP and the selection of particular members of the MPC. Secondly, it would mean that nobody with greater achievements in finance is willing to take this task. This would mean that a visible fiscal easing announced in the campaign, would have a chance to be performed quickly. In this case, we could speak of a clear pressure on the zloty, and going above 4.30 per euro would become the base case scenario.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate:
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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 Cinkciarz.pl Sp. z o.o is prohibited.
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