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Daily analysis 08.06.2016

8 Jun 2016 12:11|Marcin Lipka

The World Bank reduced the perspective of economic growth. The Chinese data regarding foreign trade was relatively positive. Today's MPC should not have a visible impact on the Polish national currency. The euro, as well as the dollar continue to wear-off against the zloty.

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

  • 16.00: Marek Belka's press conference after the Monetary Policy Council meeting.

New estimations from World Bank

According to the rules of the Federal Reserve, its members are not to make public statements regarding the monetary policy seven days before the next Fed's meeting. Thus, we can be certain that this factor will not impact quotations of the American currency.

Investors will focus on other factors that include new macroeconomic projections from the World Bank (WB). This institution reduced the future global economic growth by 0.5% for this year (down to 2.4%), and by 0.3% for next year (down to 2.8%). The pace of the future economic development of the United States, has decreased even more. It is currently at the level of 1.7% for 2016. This result is 0.8% below estimations from January.

It is worth reminding that the Federal Reserve's estimations from March assumed an increase in this year's American GDP to be between 2.1% and 2.3%. If the FOMC complies with the World Bank's expectations next Wednesday, this would be an argument to sustain a milder monetary policy. Moreover, it would also be disadvantageous for the dollar.

It may seem interesting that WB forecasts a 1.6% economic growth for the euro zone this year. This result is only 0.3% lower than the American growth. In January, the difference between the above values was at 1%. Out of the positive elements, the Chinese as well as the Indian GDP are to remain above the level of 6.0% and 7.5, respectively until 2018.

The World Bank also takes note of the risk related to Brexit, as well as the “protective rhetoric” in the USA. Moreover, the WB claims that, “the revival of developed economies had stopped, ”but the risks are very clear. These anxieties should cause the hikes in the USA to be postponed, as well as to extend the weakness of the USD.

Chinese data

Today's Chinese data on the foreign trade is relatively positive. Import increased for the first time in more than a year (more than 5%). This is an effect of higher oil prices, as well as an increasing demand for iron ore, for example.

There was an increase in export as well. However, it was below expectations at the level 1.2% y/y. Some economists are concerned by the fact that import from Hong Kong increased by 242% (the biggest growth in history). This is a result of the fact that some entrepreneurs try to avoid the capital flow control, by increasing the value of invoices.

Of course, the above phenomena may be disturbing. However, despite a large increase, import from Hong Kong as a whole was less than 2.5 billion USD. If we compare this to the trade surplus made by China in May (50 billion USD), the above amount is marginal. Moreover, it basically does not disturb the general tone of the reading to any degree.

Thus, the Chinese data, as well as the authorities approach towards the renminbi, seem to decrease the possible dangers coming from China. The above mentioned World Bank report also estimates that, “a strong slowdown in China is an unlikely scenario.”

Zloty continues appreciation

A decrease in expectations regarding the hikes in the USA continues to help the emerging markets currencies, such as the Turkish lira or the Hungarian forint. The zloty is also taking advantage of the milder global monetary conditions. Moreover, the PLN is currently even in a better condition than the forint.

It is possible that this is a result of the relatively high profitability of the Polish debt. The Polish 10-year bonds are above the 3.15% level, while the German levels are at their historical minimum (0.05%). The difference between them is the greatest since October 2012, and despite general anxieties over the fiscal situation in Poland, this may be a good argument for some of the wallet investors to take positions on the Polish debt.

We should not expect any crucial decisions from the MPC meeting today. However, it is interesting to see if the Council's members will share the updated GDP projections for the entirety of 2016 with reporters. It is likely that after a very weak first quarter they will be decreased in the July Inflation Report. The National Bank of Poland expected a 3.8% increase in March. The World Bank forecasts that Poland's development will be at the level of 3.6%, while the OECD estimates it at 3.0%.

However, the situation on the zloty will probably remain relatively positive. The risks of working-off the recent depreciation of the EUR/PLN, as well as the USD/PLN are rather limited until the Federal Reserve meeting next week.

8 Jun 2016 12:11|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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