Afternoon analysis 29.06.2016

Milder expectations regarding the American monetary policy, cause an improvement the sentiment in the global shares market, as well as decrease negative effects of Brexit. The zloty remains steady against the euro, and slightly gains against the dollar.

Will there be no hikes in USA for the entire 2017?

Brexit is causing radical consequences for the American monetary policy. At least, this is how the behavior of the American debt instruments should be interpreted. Profitability of bonds has clearly decreased since the announcement of the referendum results. Moreover, interest contracts that are related to them, are showing extraordinarily mild monetary conditions for the forthcoming quarters.

In May, investors were discussing the scale of hikes by the end of the year. Two possible hikes were estimated. However, the data from the American labor market reduced these estimations to an approximately one 0.25% hike. Currently, investors are estimating the monetary tightening for the beginning of 2018.

Last evening, we received the first comments from the Federal Reserve after Brexit. Jerome Powell, the Federal Reserve governor who is considered as relatively neutral, made a testimony regarding the monetary policy. However, he spoke little of hypothetical consequences of Brexit.

There were basically only two paragraphs regarding the past week events in the above mentioned testimony. Powell claimed that, “the voting caused new uncertainties,” and that, “the Federal Reserve is observing carefully the events in the global financial market.” He also added that, “the American financial sector is strong and resistant.” The FOMC representative also said that, “it is definitely to soon to evaluate the Brexit consequences.”

Perhaps the market is beginning to believe in a very positive scenario. Even if the Fed returns to the concept of hikes, it will probably happen at the end of 2016. The future monetary tightening may be milder than it was presented in June. Of course, this reduces the financing costs for enterprises. On the other hand, we have a risk of a global slowdown, recession in the United Kingdom, or problems in Europe. However, some claim that they may be rather limited.

Investors who are more optimistic, may claim that future condition of the global economy will not be significantly worse than the previous scenario. Therefore, lower interest rates may improve the results of companies, as well as increase profitability of investments.

Zloty sustains its growth

The Polish national currency remains quite stable against the euro in the afternoon. On the other hand, it gains slightly against the dollar. Investors in the USA have started the day from solid 1% growths. This helps to keep a positive global sentiment as well. Fear on the pound is lower as well, and the GBP/USD quoted an approximately 1% growth.

Of course there is a question, are the American investors capable of raising the global sentiment to the point in which the situation on the PLN would improve clearly? For the time being the zloty market is quite skeptical towards the American optimism. We also do not expect the EUR/PLN to go below the limit of 4.40 until the end of this week.