Afternoon analysis 06.06.2017

06.06.2017 15:09|Bartosz Grejner

The demand for “safer” assets was higher as the global sentiment deteriorated – the price of gold increased and the yen appreciated, while European indexes were lower. The Polish currency was in a weaker condition as a result.

Higher risk aversion

Today’s trading saw an increased level of risk aversion. The European stock exchanges were visibly lower, while the price of gold increased and the yen appreciated. The Japanese currency was one of the fastest growing currencies today – it increased its value against both the euro and the dollar. The USD/JPY pair fell below the 110 boundary to the lowest level since 21st April.

A few factors contributed to such a situation. On Thursday, the European Central Bank will release a statement and hold a press conference after the monetary policy meeting. The UK elections will be held on the same day and the former FBI director (James Comey) will be testifying before the Senate. Additionally, the global sentiment could have been worsened by the strained relations between Qatar and other Arab countries in the region.

Despite a slightly worse sentiment today, the dollar remained fairly stable. The EUR/USD pair traded near yesterday’s levels, around 1.125. The pound was just as stable – GBP/USD oscillated around the 1.29 level. Due to the planned events on Thursday, the last two days of this week’s trading could see increased volatility of the dollar, pound and euro.

Zloty was slightly weaker today

The Polish currency would have reacted particularly well, if the global sentiment was positive, hence that higher risk aversion could contribute to the zloty’s relatively fast depreciation. Such a scenario could be observed today – the Polish currency value decreased against most major currencies. The zloty in relation to the euro (EUR/PLN), dollar (USD/PLN), pound (GBP/PLN) and Swiss franc (CHF/PLN) traded near the upper boundaries of last week’s trading range.

The sentiment could even worsen during the afternoon session today, when US investors will be more active. There are no planned important macroeconomic events for the afternoon that could change the sentiment, so the worse condition of the European stock exchanges could translate to a similarly poor condition in the US stock exchange. Should the US indexes sharply drop today, the condition of the Polish currency could further deteriorate.

Tomorrow’s preview

At 8 a.m. tomorrow Destatis will publish data regarding new factory orders in April. After the biggest monthly drop since 2009 (by 6.8%), new orders in the industry sector increased in the following two months by 3.5% and 1% respectively. The market consensus points towards a decline by 0.4% in April, compared to March.

The data could suggest that industrial production could have slowed down in April. However, the monthly data have been quite volatile and, thus, haven’t always been a good indicator of industrial production in every given month. The impact on the euro’s trading should be limited – the German stock exchange could react to a greater extent, should the data deviate from the market consensus.

The Polish Monetary Policy Committee, after a two-day meeting, will publish tomorrow the decision regarding interest rates. Any changes aren’t expected, however, the most important part is likely to be the issued statement and the press conference held at 4 p.m. During the last conferences, Adam Glapiński, MPC’s chairman, even suggested leaving the rates unchanged until the end of 2018.

Such a stance of the Polish MPC has been ignored by the market and the zloty has been visibly stronger in recent months, mainly due to external factors. The worsening of the sentiment in Europe for political reasons coupled with increasing the price of gold and the appreciation of the yen (which suggests a higher level of risk aversion), could cause the Polish currency to lose value due to a dovish MPC.

 


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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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