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Daily analysis 04.07.2016

4 Jul 2016 13:15|Marcin Lipka

The PMI index from the British construction sector went to its lowest level since June 2009. The lack of session in the USA suggests a calm afternoon. Despite the neutral global environment, the zloty was weak this morning. No changes in Poland's rating from Standard & Poor's.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • No macroeconomic data that could significantly impact the analyzed currency pairs.

Weak PMI index from United Kingdom

It seems that information from the United Kingdom will determine the global sentiment to a significant degree, just as it was in the case of the Greek crisis. It will reflect in the pound at first. Later on, if the information is significant for the European Union, it may also reflect in other currencies of the developed markets, as well as of the emerging markets.

The data regarding the PMI index from the British construction sector, was published this morning. In general, we rarely focus on this index. However, investors are currently searching for any information on how can Brexit impact the sentiments of entrepreneurs, consumers and finally the entire British economy.

The June data shows a significant decrease in the Managers' Index. According to the Markit information, it decreased to its lowest level since June 2009 (from 51.2 points to 46.0 points). However, it is worth noting that only 20% surveys were sent after June 23rd that is after the Brexit referendum. Thus, despite a sudden depreciation, the referendum effect is not calculated in the index in its entirety.

The PMI description also indicates that the commercial real estates sector suffered the most. Depreciation in its activity was one of the fastest in six-and-a-half years. On the other hand, the apartment building slowed down the most since December 2012. In opinion of respondents, the main reason for a worse condition of this sector, was of course the then forthcoming referendum.

However, it is also worth noting that the British construction sector was in a very positive condition during the past few quarters. Its index was within the range of 55-65 points. A clear decrease in its activity was not observed until April. This may mean that even if the Brexit consequences are not very intense, the construction sector may still be in for a significant deterioration of the business cycle.

Farage resigns. No session in USA

When it comes to the British politics, it is worth noting the resignation of Nigel Farage from managing the United Kingdom Independence Party (UKIP). He was one of the most recognizable characters of Brexit, along with Boris Johnson. Last week, on the other hand, the latter resigned from being a candidate for a chairman of the Conservative Party, as well as the prime minister of the United Kingdom.

However, Farage has already resigned from running the UKIP in 2015, but changed his mind after a few days. Currently he claims that after he was the leader of the campaign to “reclaim the country”, he wishes to “reclaim his life.”

On the other hand, last week's resignation of Johnson should increase Theresa May's chances in race for the position of prime minister, as well as the chair of the Conservative Party. The likelihood of that, is currently approximately 75%. On the other hand, chances of Michael Gove, who is a declared supporter of Brexit, are estimated for approximately 10%. Regardless of the recent forecast history of the bookies, the above results overlap the YouGov surveys that give bigger chances to Theresa May as well. This is despite the fact that Boris Johnson was still included as a candidate.

For the time being, the above information do not make the probability of avoiding Brexit any larger, nor impact the future negotiations between London and Brussels. Considering the incredible pace of changes in the British politics, investors may not be eager to take any specific positions too soon.

This afternoon should be relatively calm. The American session is canceled due to celebrations of the Independence Day. There are also no plans for any macroeconomic data, as well as any testimonies from the FOMC representatives.

Zloty is clearly weaker

This morning, we could observe a clear wear-off of the zloty, despite the general calmness in the currency market. As a result, the PLN is the weakest currency among thirty-one currencies of the emerging markets, as well as developed markets. The zloty lost approximately 0.50% against the forint as well. This suggests that presentation of the new formula for the Open Pension Funds, was the main reason for a decrease in value of the Polish currency.

It is also worth noting the Friday announcement from Standard & Poor's. Even though the rating (BBB+, negative perspective), as well as conditions of the future reduction (lower independence of the NBP, easing of the fiscal policy) did not change, the agency focused on possible negative consequences of Brexit for Poland, as well as its trading partners. Moreover, it also took note of the problem of decreasing the retirement age.

Depreciation of the zloty is most likely to increase this afternoon. The matter of the Open Pension Funds is most likely to be discussed many times in the future. For the time being, it should not be a serious danger for the PLN. However, it does not impact it positively as well.

4 Jul 2016 13:15|Marcin Lipka

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.

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