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Afternoon analysis 23.01.2017

23 Jan 2017 16:30|Bartosz Grejner

The OPEC counties agree on how their last year’s agreement regarding limits in the oil production will be monitored. Slight changes on the zloty during the second part of the day.

Positive sentiments within the cartel

Last weekend, a meeting between the OPEC members and the oil producers from outside of the Cartel (Russia and Oman) occurred. This meeting’s goal was to establish the control mechanism of fulfilling the agreement regarding limits in the oil production. According to Bloomberg agency, it has been established on Sunday that the monitoring committee will consist of Algeria, Kuwait, Oman, Russia and Venezuela, and its first meeting will be held on March 17th.

At the same time, the OPEC secretariat (which is responsible for monthly reports regarding the oil market) will grant the committee with access to the report about executing the limits each month. These reports will be made by a technical group, which consists of five members of the committee, plus Saudi Arabia.

Khalid Al-Falih, the Saudi minister of energy, said that the daily oil supply was decreased by 1.5 million barrels, which is slightly more than 80% of the assumed target (1.8 million for the period of six months). Al-Falih suggested optimistically that this is one of the best agreements that has been concluded in a very long time.

This is a positive signal for oil. However, its impact on the oil prices will most likely be dimmed by increasing likelihood of the slate mining in the USA. Last Friday, Baker Hughes published its weekly report regarding activity of the American drills. Their amount increased to 551, which was their highest level since November 2015, as well as a 41 YoY increase.

Higher oil prices may cause the American companies to produce more oil. This would be unfavorable for OPEC, because the cartel wished to keep its market shares. Therefore, it seems that the oil prices will be supported by the agreement regarding the production limit on one hand, and limited by potential slate mining in the USA on the other.

It seems likely that the oil prices will remain within the range of 50-60 dollars per barrel over the forthcoming months. Potential fluctuations will be a result of reports, as well as speculations regarding the production in the USA and in the countries that have signed the agreement in December. This perspective may also mean a lesser impact on the global inflation, which has recently been fueled by increasing prices of energetic resources (mainly of oil).

If the oil prices stop increasing so suddenly, this may limit the market speculations that central banks will begin to raise interest rates more rapidly than it was expected. This information may be positive for the zloty as well, because potentially higher interest rates in the developed markets would be more attractive for the capital and wear-off the zloty.

Zloty is relatively calm

No significant publications, as well as relatively calm quotations of the main global currencies, caused the zloty to remain stable. The EUR/PLN is near 4.37 and the GBP/PLN went up to 5.08, due to globally better condition of the pound. The zloty continued its strengthening against the forint. The PLN/HUF reached the level of 71, which is its two-month maximum.

A significant event for the zloty is the GDP reading for the fourth quarter, as well as for the entire 2016, which will be published next week, on Tuesday. Even though this index most likely will not reach 3.4% YoY, which was estimated by the Polish government, it should also not go below 2% (which was the negative scenario, caused by negative economic data for October.)

Tomorrow’s events

IHS Markit will publish the PMI data for both industry and services for January. The market consensus for the industrial PMI for Germany, the euro zone and France, is near its last month’s results.

However, the services PMI is expected to improve in the case of Germany (54.8 points in January vs 54.3 points in December). Due to the fact that the German economy is the largest in Europe, this growth should translate to the growth of the euro zone’s index. The market consensus is at the level of 53.8 points.

At 10.30 AM, the British Supreme Court will present its verdict regarding the necessity of voting the Brexit conditions by the British parliament. In November, the higher court decided that Theresa May does not have the power to initiate the process of leaving the EU according to the Article 50 of the Lisbon Treaty. However, in her last week’s testimony, May declared a will to vote the Brexit project by the parliament. Even though tomorrow’s verdict will not delay Brexit, it may cause significant fluctuations on the pound.

At 3.45 PM, Markit will publish the American PMI. This index has been gradually increasing since September 2016 (51.5 points). The data for December indicated an increase in industry (54.3 points). However, the market estimates that this index will be pushed to the level of 54 points.

Due to the fact that there will be no significant readings of the macroeconomic data, the IHS Markit readings may increase fluctuations on currencies. However, their scale may be limited. Mild monetary policy from the European Central Bank will most likely limit potentially positive impact from the PMI.

Moreover, the American investors will focus more on the ISM, instead of the PMI. We can’t expect any larger changes on currencies, until the American GDP reading for the fourth quarter, which is scheduled for Friday. We need to keep in mind that this is the first week of Donald Trump’s presidency and the markets will listen carefully to his words, especially those regarding infrastructural expenses or taxes.

23 Jan 2017 16:30|Bartosz Grejner

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 acknowledgement of the source is prohibited.

See also:

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Daily analysis 23.01.2017

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Afternoon analysis 20.01.2017

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Daily analysis 20.01.2017

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