Daily analysis 12.09.2014

A new opinion poll is showing lower odds for independent Scotland. Draghi calls for more investments. A possibility of further monetary easing and capital outflow pushed the yen to 6-year lows. The EU decides to strengthen the sanctions. The zloty remains pretty stable and most transaction are processed below 4.20 per the euro.

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

• 14.30 CET: US retail sales (survey: +0.6% m/m; excluding cars and gas: +0.4%.
• 15.55 CET: US consumer confidence index according to University of Michigan and Reuters (survey: 83.4 points).

Voting. Draghi. Yen. Sanctions

Latest poll prepared by YouGov for “The Times” and “Sun” shows that supporters for independence are losing steam. Currently the “no” camp is 4 percentage points ahead of Scots who support a separate state. The YouGov survey is pretty important due to the fact that this research company presented the first poll where independence supporters were leading.

Investor's reaction was pretty muted after the results because market participants assume that the “no vote” wins by a small margin and the recent poll does not change this perception. We will have to wait for more surveys which deviate from the consensus to see a substantial reaction.

Continuing the separation topic, it is worth noting that even the International Monetary Fund joined the discussion. Quoted by the “Financial Times” IMF spokesman William Murray told reporters that “the main immediate effect is likely to be uncertainty over transition to potentially new and different monetary, financial and fiscal frameworks in Scotland”. Murray didn't want to elaborate on the issue more but the Fund clearly warned Scotland that it sees many problems on the horizon.

Yesterday we had first official Mario Draghi speech since the last central bank meeting. The ECB chief stressed at Milan conference that the European economy faces tough conditions - “low growth and low inflation, high debt and high unemployment”. As the monetary policy is getting closer to its limits, he called for a significant overhaul of the economy – structural and administrative reforms to support capital investments. Draghi also urged Member States to establish conditions for easier financing and loan guarantee procedures for SMEs. The speech should be a wake up call for governments which are reluctant to make any reforms.

Situation on the yen is getting more and more interesting. The USD/JPY pair rose to 6-year highs and topped 107 level. Mounting expectations for further monetary easing stay behind the most recent weakness. Such scenario may be pretty possible taking into the account yesterday's comments from the central bank chief. According to “The Wall Street Journal” Haruhiko Kuroda told reporters: “Should conditions emerge where the target (2 percent inflation) becomes difficult to meet, we are ready to make without hesitation adjustments to policy, additional easing or whatever”. Kuroda confirmed his stance on TV saying that (also according to the “WSJ”): “I don't believe that there is a limit to additional easing or that there is nothing more we can do”.

Taking into account how Japanese MPC is determined, remembering expected changes in the state pension plan investments (more purchases abroad) and further initiative to use yen as a funding currency, it is really hard to set a target for the USD/JPY. However, the first target at 110 should be reached fairly quickly and the second (near 2007 highs) at 120 may be topped in the incoming quarters.

The EU decided to broaden the sanctions against Russia. Firms with more than 50% government ownership will not be able to receive financing at European markets for longer than 30 days. The EU no-entry list was also expanded by 24 people mainly connected with Kremlin or operation in Donbas. The decision worsened sentiment in the region (particularly on the rouble) but sill the moves are fairly muted and since the beginning of the month the ruble loss was similar to the PLN slide.

Today the session on the EURUSD should be pretty calm and we will probably remain slightly above 1.2900. The following week should be really interesting in currencies. Firstly, the FOMC meeting is scheduled on Wednesday and on Thursday we are having the Scottish independence vote which will be crucial for the pound especially when the “yes” camp wins.

Low volatility on the zloty

The zloty has been traded in a narrow range – slightly below 4.20 per the euro. Investors refrain from more bold decision and wait for global events – FOMC decision on future monetary policy or hypothetical contra sanctions for Russia and local data – inflation on Monday and industrial production which is scheduled for Thursday.

The Polish readings should be helpful to decide whether the MPC cuts interest rates in October by 25 bps or will be more eager to lean toward an aggressive move and the cost of capital will be lowered by half of a percentage (dove's favorite scenario - Osiatynski and Chojna-Duch).

Today we should have a relatively calm session and probably the EUR/PLN will remain below 4.20 per the euro and 3.47 on Swiss franc. No major changes are also expected both on the dollar and on the pound (unless new polls are published).

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

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