Daily analysis 04.09.2013

Solid ISM reading from the States supported the dollar, but the EUR/USD slide was limited due to weaker unemployment sub-index and a perspective of more Eco readings. Another swing regarding Syria. The next set of data. Today at 12.00 CET (update 13.00 CET) announces a decision on pension funds. MPC – non event meeting.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

• Already published – final services PMI readings from the Euro Zone
• 11.00 CET: second euro area GDP reading (survey +0.3% q/q and minus 0.7% y/y)
• 11.00 CET: retail sales form the Euro Zone (survey +0.2% m/m and minus 0.3% y/y)
• Between 12.00 CET and 14.00 CET – Interest rate decision from Poland (survey: no change; benchmark at 2.5%)
• 14.30 CET: Trade balance from the States (survey deficit at $ 38.6B)
• 16.00 CET: Polish MPC conference after the rate decision
• 20.00 CET: Beige Book for the States

The data and Syrian issues

The US ISM reading was not only much stronger-than-estimated (55.7 vs 54.0), but also topped 2-year high. It is worth to note the changes of two sub-indexes – New orders and Prices. The first one was the highest since April 2011 and according to the ISM web site all industries but one reported growth. The latter increased due to higher raw material prices which can (if the trend remains) push the PPI and later the inflation up. A slight disappointment came from the unemployment sub-index). It dropped from 54.4 to 53.3 which probably limited the downward pressure on the EUR/USD (also with a perspective of additional, more important data scheduled later this week). However, overall the ISM was really solid and it is another argument to start the tapering in September.

The Obama's administration has showed in recent hours that it can act pretty quickly, what resulted in another swing on Syria. As both The Financial Times and The Wall Steet Journal report two most important people in the House (Rep. John Boehner and Eric Cantor) seem to support the intervention. Additionally “WSJ” claims that House Minority Leader Nancy Pelosi (Dem.) said that she “supported 'targeted, tailored' action of short duration”. The similar situation is expected in the Senate where the leaders are supposed to back up the President. The voting should take place at or after September 9th so the military action can probably start mid September. The impact on the market (if all goes with the plan) should be limited (investors have already evaluated the possible outcomes – for example briefly higher oil prices and etc.).

We have another set of data today. The day started from euro area services PMI readings which were slightly lower than the preliminary data (50.7 vs 51.0). Dividing it into separate countries the readings were lower in Italy, but better for France and Germany. Other scheduled reports can give some more indications on the EUR/USD direction (Trade Balance – the lower the better for the greenback, Beige Book – rather positive picture on the economy from the Fed).

Summarizing today the EUR/USD can have another down-day due to stronger dollar (also worth to watch the USD/JPY rise and the 100 mark) and we can slide toward 1.3100.

Polish pension funds (OFE) and the MPC meeting

Yesterday, quite unexpectedly, during the Economic Forum in Krynica, Prime Minister Donald Tusk told reporters that on Wednesday at 12.00 CET (update – 13.00 CET) he would present the details on Polish pension fund (OFE) overhaul. Analyzing the three scenarios (presented at the end of June) and all possible outcomes the first idea (to retire the government bond's part and leave the equity stake unchanged) seems to be the most probable scenario. Firstly the government will lower the debt-to-GDP rate by around 10 percentage points instantly. Secondly it is the easiest to proceed – the society does not have to make any additional decisions and the financial institutions will still have a substantial amount of funds to invest. According to the Ministry of Finance web site the first scenario is suppose to “leave the invested equity part unchanged, and the pension contribution would increase to 2.92% which equals to the 40% investment limit which was invested in equities when the OFE was initiated”. It means that the actual money flow to the stock market can increase comparing to the current level. Lastly (and probably most importantly) Tusk clearly suggested yesterday that the he favors the first scenario saying that “our main goal is to take off the burden, which pin us down in the point of public finance and is one of the expansion barriers for Poland. I am talking about that part which finances OFE by debt”.

As I mentioned yesterday the MPC decision will be a non-even meeting. All expects that the interest rate will remain unchanged. However, it is worth, as always, to listen the Marek Belka conference to (maybe) get some details about local “forward guidance”, EM sell-off or even US tapering and its impact on Polish money market.

The currency market will probably not pay too much attention o the OFE issues. The zloty will probably remain fairly unchanged around 4.26 per the euro.

Expected levels of PLN according to the EUR/USD rate:

Expected GBP/PLN levels according to the GBP/PLN rate:

The sell signal was generated on the EUR/USD. Bullish tendency on all Polish pairs.

Technical analysis EUR/USD: the slide under 1.3200 should generates the sell signal with the target at 1.30 (the 200 MA will not be a key support now). The comeback to the bullish trend possible after rising over 1.3300.

Technical analysis EUR/PLN: the move over 4.26 generated a buy signal with a first target at 4.30 (almost reached). The next target is 4.35. A slide under 4.24 suggests a return to range trade 4.22-4.26. If the EUR/PLN slides under 4.22 it generates a sell signal.

Technical analysis USD/PLN: the rise above 3.22 generates a buy signal with a target at 3.30. The comeback under 3.18 negates the bullish singal.

Technical analysis CHF/PLN: the buy signal was generated on CHF/PLN with a first target at 3.52. On the other hand the slide under 3.43 should favor a range-trade between 3.40-3.45.

Technical analysis GBP/PLN: we are getting closer to generate the buy signal (after breaking 5.00) with the target around 5.10. Staying under 5.00 still prefers the short positions.