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Daily analysis 09.11.2015

9 Nov 2015 13:43|Marcin Lipka

Slightly better data from Germany and weaker from China should not significantly affect markets after last week’s payrolls reading from the US. Charles Evans less dovish than usually. Interesting suggestions about the zloty in November's “Inflation Report”.

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

  • No macro data that may significantly affect the analysed currencies.

Stable after US payrolls

The US economy created more than 270k jobs in October. It was combined with higher than anticipated waged growth and a fall in unemployment to 7-year lows. As a result, the interest rate hike looks to be a broad base case scenario for the Fed.

Not only economists point to December as the first monetary tightening in 10 years. The probability of the hike rose to 70% according to Bloomberg calculations. We are expecting a discussion regarding the pace of the hike to start soon and this will be the main theme for the dollar as the first hike issue should be much less discussed.

On Friday, we also had some comments from Fed officials. The most interesting were the suggestions from Charles Evans on CNBC. The Chicago Federal Reserve president, who has been an advocate to hike the benchmark in mid 2016, confirmed that December would be “a live meeting”. Additionally, his other comments didn't show that he might dissent next month.

On the other hand, John Williams noted that “once the economy is operating at full strength, we're only going to need between 60,000 and 100,000 new jobs a month to keep up with the growing labour force. In the mindset of the recovery, this sounds like nothing, but in the context of a healthy economy it's what we'll need for stable growth”.

During the coming days, the EUR/USD is expected to wait for some comments from the ECB as the subject of the FOMC move seem to be used up. The eurozone rate cut or larger QE operation will be much more important as both operations have not yet been fully priced in. As a result, the main impulse for the EUR/USD to reach lows around 1.05 should come from the common currency weakness rather than from dollar strength.

Data outside the US

Over the weekend, China published foreign trade readings. Its composition was similar to the previous month. Import denominated in RMB dropped by 16% in comparison to September, while export slowed by 3.6%. The trade balance surplus was at a record high level of 61.6 billion USD.

A strong import decline is caused partly by lower commodity prices and partly by a lower demand for investment goods. On the other hand, weaker export is a result of emerging economies deterioration. Overall, the data needs some further observation as the commodities have to stabilize and the global economy will have to find its equilibrium.

Some surprises came from the German current account. Its balance rose to a 25 billion euro surplus in September with 3.6% m/m import growth and 2.6% export increase. Economists expected a much worse publication especially due to both factory orders and industrial production for September reported last week being really weak. If the following months confirm that the German trade is fairly resilient to the global turmoil, it might also be a good message for the Polish economy.

The foreign market in a few sentences

Currently, the dollar appreciation trend should slow significantly. The interest rate hike is priced in, so this issue should affect the EUR/USD much less. However, the pair may still be under pressure from the eurozone monetary loosening. As a result, the base case scenario for the EUR/USD is to test the 1.05 range, if the data from the US will not worsen significantly and the ECB meets the expectations.

Weaker zloty

At the end of Friday's session the zloty lost around half of a percent to the euro. Today, some of this slide was corrected but the local currency is far from being strong. It is partly the result of some uncertainty regarding the fiscal issues and partly due to a different view concerning both Polish and ECB monetary policy. However, if Draghi decides to broaden the QE, the PLN should benefit from this move even if the Polish MPC decides to cut the benchmark. It should also push the EUR/PLN below the 4.25 mark.

The National Bank of Poland (NBP) published its “Inflation Report” today. There are some interesting comments regarding the zloty in the document. “Despite its gradual decrease in the subsequent quarters, throughout the projection horizon current and capital account balance will stay above the long-term average for this category, which will contribute to gradual appreciation of the domestic currency,” writes the NBP.

The stronger zloty view published by the NBP is seen as a medium to a long term horizon. However, it is worth noting that the current account balance with the monetary policy is the main fundamental driver for the currency value.

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

Range EUR/USD 1.0750-1.0850 1.0850-1.0950 1.0650-1.0750
Range EUR/PLN 4.2400-4.2800 4.2400-4.2800 4.2400-4.2800
Range USD/PLN 3.9400-3.9800 3.9000-3.9400 3.9600-4,0000
Range CHF/PLN 3.9200-3.9600 3.9200-3.9600 3.9200-3.9600

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5150-1.5250 1.5050-1.5150 1.5350-1.5450
Range GBP/PLN 5.9800-6.02000 5.9600-6.0000 6.0000-6.0400

9 Nov 2015 13:43|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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