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Daily analysis 05.07.2016

5 Jul 2016 13:13|Marcin Lipka

Due to the publications of the consumers and entrepreneurs index by YouGov/CEBR, as well as the PMI by Markit, the pound goes down to its thiry-one-year minimum. Tomorrow's minutes from the Fed will answer the question, how did the FOMC receive Brexit. The zloty remains stable against the euro, as well as the franc, but also against the forint.

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 have a significant impact on the analyzed currency pairs.

Pressure on pound continues

The GBP/USD increased its thirty-one-year minimum in the morning, and went to the level of 1.3115. The main reason for a decrease in value of the British currency is the weak macroeconomic data. Even though we are still talking about surveys, it is most likely that they will reflect in consumption, production and the construction sector rather quickly.

According to the YouGov/CEBR (Centre for Economics & Business Research) data, the consumers sentiments went to their lowest level since May 2013. The survey was conducted between the 23rd and 27th of June. The surveys that were conducted among entrepreneurs between the 28th of June and the 1st of July, were as weak. According to the publication by YouGov/CEBR, 49% of respondents have expressed a pessimistic view on the economic situation. In the previous survey it was only 25%.

Scott Corfe, the CEBR director, who was cited by the Bloomberg agency, claims that, “this data shows what is going on here (in the United Kingdom – author's footnote), as well as suggest a clear shock reaction.” Moreover, Corfe added that, “it is not only the economists who are increasingly pessimistic towards the general economic condition, but their expectations regarding the national sale, export and investments for the next twelve months, decreased dramatically.”

There were not many positive elements in the Markit/CIPS (they examine the sentiments of managers of the British services sector) data as well. PMI index went to its lowest level in thirty-eight months. The estimations were at the lowest level since December 2012. Moreover, increase in employment was the lowest since August 2013.

However, it is worth noting that the majority of PMI surveys were sent before the British referendum. According to the Markit/CIPS information, “89% of answers were sent before June 24th.” Chief economist of Markit wrote in his commentary on the data that, “PMI only indicates a 0.2% economic growth in the second quarter.”

The perspectives for the British currency, as well as the economy are not positive. The pound is most likely to remain under clear pressure. Especially considering that the United Kingdom may quickly go towards recession, as well as the Bank of England may return to quantitative easing. If this happens, it is possible that the GBP/USD may even go below 1.25.

Fed's minutes

Tomorrow's minutes may be very interesting regarding the future monetary policy, as well as a hypothetical impact of Brexit on the American, as well as the global economy. It is interesting, how did the FOMC members receive the danger related to the British referendum three weeks ago.

This also may give a certain answer, whether Brexit is capable of postponing the monetary tightening in the USA. If these anxieties are very limited, it is possible that this announcement will be favorable for the dollar. It is worth noting today's testimony of William Dudley as well. The third most important person within the FOMC will speak of the New York economy at 20.30. However, it is possible that he will refer to the current situation as well.

Zloty is getting weaker

Just as it was on Monday, the zloty started this day poorly. The Polish national currency lost approximately 0.5% against the euro, as well as the dollar. This was partly an effect of a worse global sentiment, as well as depreciation of the pound. However, it was also due to internal weakness of the PLN, because it lost value against the forint as well. It is also possible that the zloty is yet again entering the period of greater dependence on the GBP condition, just as it was before, as well as shortly after the British referendum.

More investment banks are beginning to revise their forecasts regarding the economic growth for Poland. JPMorgan decreased the GDP growth for 2017 by 0.5%, to the 3.0% level. The HSBC is currently estimating that the Polish economy will develop at pace of 3.4% in 2016, as well as in 2017. This is by 0.3% and 0.4% less than previously expected, respectively.

In our opinion, the information whether the Polish government will decrease the retirement age without introducing a minimum contribution period, will be crucial in the following hours. If the government does that, the zloty may lose value significantly. Moreover, Fitch may reduce the perspective of Poland's rating in the mid-July.

5 Jul 2016 13:13|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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