Central banks in limelight (Daily analysis 13.09.2018)

In the afternoon, the situation in the broad market may be influenced by the central banks. Is there a chance that relations between China and the USA will warm up in terms of customs duties? The zloty remains stable and today's decisions of monetary authorities in the world should not significantly disturb the zloty's quotations.

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

• 1:00 p.m.: Bank of England interest rate decision (estimates: no changes at 0.75%).
• 1:00 p.m.: Bank of Turkey interest rates decision (estimates: increase by 3.25 percentage points to 21%).
• 1:45 p.m.: ECB interest rate decision (estimates: no changes at 0 percent).
• 2:30 p.m.: Press conference after ECB meeting.
• 2:30 p.m.: CPI inflation in the USA for August (estimates: 2.8% year-on-year and 0.3% month-on-month; excluding fuel and food prices 2.4% year-on-year and 0.3% month-on-month).

Reduced trade tensions

Yesterday afternoon, The Wall Street Journal wrote that the US proposed the reopening of talks with China on foreign trade. This information was confirmed by a spokesman for the Chinese Ministry of Commerce. Gao Feng, quoted by Bloomberg, said that the Middle Kingdom had received an invitation and was "working on details". Talks are likely to take place in Washington.

It is said that the initiative was taken by a more dovish group of US politicians (Secretary of Treasury Steven Mnuchin and Larry Kudlow, head of economic advisors to President Donald Trump). Now it can be said that the tension between the USA and China should ease somewhat. Pressure on emerging market currencies (including the yuan) is also likely to decrease. However, the question of how long the truce will last is still open, and whether it is not a sign of a further increase in tension.

It seems that neither side is ready to change its position. Perhaps the White House administration's actions are driven by the elections to the Congress in November. It is worth keeping the Chinese issue as an argument confirming the strength of the administration, but before the election, it is better not to cause greater market turbulence in order not to blur the great market situation since the presidential election in 2016. As a result, the whole sequence of events may shift in time due to the invitation to talks from the US. However, the plan for the next few months has probably not been significantly modified - the culmination of tension is still ahead of us before there is a long-term relative truce.

Decision of the Bank of Turkey

Yesterday we highlighted the hypothetical decisions of the Bank of England and the ECB. In the former case, it seems that the message will be rather neutral, given that the next interest rate increase is not expected before the first quarter of 2019, and the issue of Brexit is still the main threat to the British economy.

In the case of the ECB, the message may be less optimistic than at the last meeting. Yesterday we also wrote that forecasts will probably be revised downward (this was confirmed by subsequent leaks from the ECB), which also does not suggest that the tone of the conference or statement should be hawkish.

Much more uncertainty surrounds the meeting of the Turkish Central Bank (TCMB). A few comments from President Recep Erdogan also appeared before midday. All the time he continues to take a mildly non-standard approach to economic processes. The President of Turkey stated that the result of high interest rates is high inflation. He also argued that interest rates should be lowered. He also added that interest rates are an instrument of profit. All in all, none of these comments are new, as they have been repeated many times by the President.

Moreover, Erdogan also said that "the central bank is independent" and some infrastructure projects will be postponed due to the economic situation. After Erdogan's comments, the Turkish currency lost about 3 %. It seems, that the TCMB will nevertheless raise interest rates and a huge tightening of monetary policy is rather unlikely. Therefore, it seems that the movement will be close to what the market consensus expects (about 3 percentage points, to 20-21%). Higher increases (by 5-7 percentage points) are unlikely after the President's comments. In turn, if the monetary policy was not tightened, a dramatic weakening of the lira can be expected (perhaps even in the range of 5-10 %).

Stable zloty

The Polish currency remains stable. The EUR/PLN fluctuates between 4.31 and 4.32. In the afternoon the NBP will publish the balance on the current account. According to the Polish Central Statistical Office (GUS) data from yesterday, the foreign trade deficit was at the level of about 400 million EUR in July, i.e. more or less in line with the expectations of economists. Although the NBP data sometimes does not coincide with the GUS readings, the risk of a serious increase in the C/A deficit (as in some emerging economies) is unlikely for the time being.

In the coming hours, the decisions of central banks should not affect the zloty. The risk related to customs duties, at least in the short term, seems to be eliminated due to the prospect of a return to the negotiations between the USA and China. As a result, the baseline scenario for the zloty remains stable and close to current levels.