Concentration of negative information (Daily analysis 26.06.2018)

26.06.2018 12:55|Marcin Lipka

Growing fear on the markets regarding possible investment restrictions in the USA and the approaching date of customs duties on Chinese goods. The yuan's further weakening. The zloty, after reaching 15-month lows to the euro, strengthens slightly. However, the external situation remains negative for the Polish currency.

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

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Strong risk aversion and unclear statements

Yesterday, a significant part of the US session took place in the minute mood. At one point, Dow Jones lost 500 points (2%), which well demonstrated the scale of emotions and the negative impact of the possible introduction of investment restrictions in the US. However, at the end of the session, Peter Navarro, one of the key figures in Trump administration and economic advisor to the White House, appeared on CNBC.

He suggested that an initiative to block investment in " technologically important industries " should not be imposed. This resulted in a clear reduction of the market valuation. However, with the interpretation of Navarro's statements at CNBC argued The Wall Street Journal in the evening, which widely described both the plans to introduce investment restrictions in the US and the conflict between Navarro (targeting mainly the Chinese companies) and Treasury Secretary Steven Mnuchin who advocated the introduction of investment restrictions regardless of the origin of the company.

The Wall Street Journal also mentioned a statement by the White House spokeswoman. According to the newspaper, Sarah Sanders said that the communication will cover all countries that are trying to steal the technology, and it will be made public soon. As a result, it is difficult for investors to assess what the White House is actually planning to do in the case of investment restrictions. According to the media, more should be learnt about this later this week.

Moreover, the turn of June and July will also be important in the context of hypothetical tariffs (on goods imported from China worth 50 billion USD), which are expected to be physically introduced on July 6th. For investors, the amount of negative information is therefore relatively high. US companies may also be afraid that Beijing will start to hamper their activities in the Middle Kingdom in the coming steps, which will make the sentiment even worse. Therefore, the next few days will be very important because they will show whether both sides will withdraw from the proposed protective measures and whether they will actually be implemented. The latter option would be negative for the global sentiment.

Weak yuan, weak zloty

In the context of the currency market, yesterday's dollar weakening was somewhat surprising. In part, it was probably caused by a decrease in yields of US treasury bonds (a lower chance of interest rate increases in the case of a worse than expected economic situation). Today, this movement is being corrected and the dollar is strengthening, however, the US currency may have some problems reaching new highs.

The yuan remains weak, however, and it is still depreciating (the dollar costs 6.58 CNY), which worsens sentiment also in other emerging market currencies, including the zloty. Few positive messages are also coming from the eurozone. The ruling coalition in Germany is experiencing problems, and the yields of 10-year Italian bonds are starting to fluctuate around 3.00%.

Fear of foreign trade and problems in the eurozone put pressure on the zloty. In the last few hours, euro has cost 4.35 PLN, which is the highest amount in 15 months. If the sentiment does not improve in the coming days, the EUR/PLN pair may even reach about 4.40, which would mean reaching levels that have not been seen for a year and a half.


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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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