Afternoon analysis 21.09.2016

Is the BoJ decision positive for yen and for commercial banks? Better consumer sentiments in Poland.

Changes in BoJ

The market’s reaction for today’s decision from the Bank of Japan (BoJ) was positive. This mostly was a relieve for banks that have been pulling the global indexes higher. The Japanese central bank has basically not changed much regarding its operating methods.

There are still anxieties regarding ineffectiveness of the BoJ actions. Initially, the stock markets may react positively on today’s decision. However, the Federal Reserve’s decision may cause the dollar to go below the 100 level against the yen. This would provoke new questions regarding the possible impact of the BoJ’s program on the economy with so strong currency. This translates negatively to export, which is one of Japan’s main engines.

Today’s decision from the Bank of Japan may have a temporary effect on positive sentiments in the markets (mostly among financial institutions). At the moment of writing this analysis, the USD/JPY was at the level of 100.72 and went down from its today’s peak (102.8).

The zloty is stable before the Fed's decision

The zloty has remained relatively strong against the main currencies for more than one weak. The BoJ decision from today didn’t have a negative impact for the PLN/USD rate, which gives the Polish currency a good position before the Federal Reserve announces its decision regarding interest rates today at 20.00 (8.00 PM).

The market assumes that rate hikes will remain unchanged, which should strengthen the zloty. What’s important is the message from the Federal Reserve. If it’s hawkish (a suggestion of changes in rate hikes on the meeting in December), appreciation of the Polish currency will be short-term.

Tomorrow’s events

Significance of the decisions from the Bank of Japan, as well as from the Federal Reserve, causes that investors will discuss them over the next few days. This will probably cause larger fluctuations of currency exchange rates, as well as stock market indexes.

Tomorrow we will know the data regarding the labor market and the real estate market in the USA. These indexes also impact the Federal Reserve’s decisions regarding the monetary policy.

At 14.30 (2.30 PM) we will know the data regarding last week’s jobless claims. Over past few weeks it has remained at the level of approximately 260k. The readings from the past five weeks appeared to be slightly better than the market consensus. If interest rates remain unchanged (which is the most likely scenario), a positive trend regarding jobless claims could strengthen the dollar. This is because investors will expect rate hikes in December. However, this will have a limited impact on the dollar.

Half hour after opening of the American session, we will know the data regarding sale of houses in secondary market. We should keep in mind that we have received data regarding home-building permits, as well as home-building initiations yesterday. Both indexes appeared to be definitively below the market consensus.

Even though the market did not react to them while anticipating the Federal Reserve’s decision, things may be different tomorrow. With knowledge regarding the Fed’s decision, investors will focus on the real estate data, as well as the labor market data, in search for hints regarding the Fed’s behavior in December.

Yesterday’s negative data from the real estate market increase the likelihood of the scenario that weak data regarding sale of houses in secondary market may be interpreted by investors as negative for rate hikes. In the case of a significantly large deflection from the market consensus, the dollar would wear-off.