Hope to come from Ifo (Daily analysis 25.03.2019)

25.03.2019 13:56|Marcin Lipka

The wave of information about the Brexit during the weekend does not affect the pound's quotation on Monday. The German Ifo index is slightly above the economists' expectations. The zloty remains relatively stable in relation to the euro. According to the Minister of Finance Teresa Czerwinska, she will remain in office.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Political crisis in Great Britain

During the weekend there was a great amount of information about Brexit. There were protests of British citizens against leaving the EU (about 1 million people in London) and, for example, the signing of a petition concerning a parliamentary discussion on the repeal of Article 50, i.e. in fact, the cancellation of the Brexit. More than 5.4 million people supported the petition.

In addition, media have reported that more and more Conservative members want to dismiss Prime Minister Theresa May. May's policy is not liked either by the Eurosceptic part of the Tories or the clearly pro-European part of the party, as a result of which speculation about the new Prime Minister has spread as widely as the Conservatives are divided. Both the conservative and liberal media reported May's inevitable resignation.

There is also a scenario that assumes that Prime Minister May will resign if the Eurosceptic Tories support the Brexit plan negotiated by her. However, this does not seem to solve many problems, as the current Conservative Party will still negotiate the new trade agreement. The solution would be early elections, but then the moment of leaving the EU will certainly have to be postponed by at least one year if the future government wants to start negotiations from the very beginning.

According to the Brexit schedule of the day (presented, e.g. by "The Guardian"), the next debate on the Brexit will start after 6:00 p.m. CET. Late in the evening (11:00 p.m.), there will be a vote on amendments which may indicate whether there is increasing support for alternative solutions to the Brexit.

The most important issue for the market is whether chaotic leaving the EU at this point in time is probable. It seems that the risk of such a solution is still limited, as the Parliament, although divided, is certainly opposed to non-contractual exit from the EU. It is unlikely that we will see a repeat of Thursday when the Union was unwilling to extend the negotiation period and the risk of a chaotic Brexit was increasing. As a result, the immediate threat to the pound in the coming hours is rather limited, at least in terms of the information currently available.

Ifo brings hope

After catastrophic PMI readings from the German economy (especially from industry), even relatively positive information sounds optimistic. The Ifo index rose to 99.6 points in March. This is still the second worst result in three years, but at least the first increase after six months of declines in a row.

Unfortunately, the rebound did not apply to German industry. The sub-index of expectations of German entrepreneurs in industry fell to minus 12.2 points, i.e. it continues the downward trend and reached its lowest level in more than 6 years. The scale of pessimism in this sector is reflected in the fact that in the high point of the eurozone debt crisis it was minus 16.8 points (we are now close to this level), and in the best economic situation in recent years (end 2017) it exceeded the value plus 20 points.

However, the situation outside the industry is not so bad. The services have clearly rebounded since last month. The outlook for trade (domestic) and the construction sector in relation to the relatively high estimates of the current situation does not look tragic either. However, data from Germany have had a marginal positive impact on the EUR/USD exchange rate, and the main currency pair is still close to the 1.1300 boundary.

External pressure on the zloty

After many days of media speculation, Minister Teresa Czerwinska made a statement on the situation of the Ministry of Finance in Poland. "The rumours about my resignation are far exaggerated. Apart from that, everything needed to be said is said, the Prime Minister made a statement, so I understand that the subject is closed," said Prof. Teresa Czerwinska, according to the Polish Press Agency's (PAP) message.

PAP also reported that, according to the Minister of Finance, "stimulating the economy within the expenditure rule will not endanger the stability of public finances". Therefore, it can be understood that the rule will apply, which to some extent suggests that the minister accepts the current fiscal plans (earlier there were suggestions in the media that the increase in spending is not accepted). Prof. Czerwinska stated that she would do everything possible to maintain the 3% rule of the public finance sector deficit.

The Minister of Finance's comments did not affect the zloty. The market will rather analyse the budget's balance of revenue and expenditure on an ongoing basis and will look in detail at the convergence plan to be sent to Brussels and will be available within the next month. Also at the end of the week, Fitch will publish a review of the Polish rating, in which it will probably dedicate a lot of space to the issues of fiscal changes in Poland.


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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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