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Daily analysis 12.12.2016

12 Dec 2016 12:54|Marcin Lipka

The agreement between the non-OPEC countries caused new growths in oil prices. New records in profitability of the American debt before the Fed meeting. The zloty wears-off against the main currencies, as well as against the forint.

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

  • No macro data that could significantly impact the analyzed currency pairs.

New growths of oil prices

Last weekend in Vienna, the non-OPEC countries representatives agreed on limiting their level of oil production by 558k barrels per day. However, more than 50% of this obligation will be fulfilled by Russia, which decided to decrease its mining by 300k barrels per day. This meeting was surprising in general. For example, Kazakhstan agreed to cut its production by 20k barrels. This was despite that the EIA recently estimated that Kazakhstan’s production will increase by approximately 100k barrels.

We also received an interesting information regarding Saudi Arabia. This country’s Minister of Energy, Khalid A. Al-Falih, said that Saudi Arabia is open to limit its production even more than it has been initially established in November. It has been said that Riyadh may reduce its mining below 10 million barrels per day (currently it’s 10.53 million).

It seems that oil producers are not only trying to stand up to expectations regarding production limits, but also suggest to limit it even more. This causes further growth of prices. Today, the Brent oil costs 57 USD per barrel, which is the largest value in approximately one-and-a-half year. However, it also seems that the producers will not undertake any more actions for the time being. The price near the level of 60 USD per barrels is satisfying for them, especially that the dollar is at its record high level. Moreover, further growths of oil prices may harm the global economic growth.

Currently, one liter of Brent oil costs 1.5 PLN. This is 100% more than at the beginning of this year and only 0.50-0.70 PLN less than during the oil prices breakdown in the second hald of 2014. Moreover, oil prices expressed in the Turkish lira are currently much higher than they were in 2012 and 2013. This will not only cause an increase in prices in many emerging market countries, but it may also deteriorate their trade balance and make them more sensitive to external disturbances.

Fed at the center of attention

Since last week’s beginning, we have been focusing on the significance of the Federal Reserve meeting, which will be held on Wednesday. Investors are estimating that the future interest rates path will be more steep. Profitability of the American ten-year bonds is above the level of 2.5%. The situation is similar when it comes to the five-year bonds, which are above the level of 1.93%. This is its highest level since May 2011.

However, there is still much space for an increase in the profitability of the treasury bonds, if the Federal Reserve potentially changes its macroeconomic projections. A change from two to three rate hikes for 2017 would show that the FOMC is considering the scenario of more rapid economic growth, as well as of larger inflation pressure. Even if this concept is not fulfilled, it may be an appreciation impulse for the dollar for the forthcoming months. This would be especially visible against the yen or the euro, because the monetary policy in Japan and in the EU remains extremely mild.

Zloty remains weak

This week begun negatively for the zloty. Not only is the Polish currency weak against the dollar or the euro, but also against the forint. This morning, the PLN/HUF went down by approximately 0.5% in comparison to Friday and is currently near the level of 70.40. As we can see, positive effects of the ECB milder monetary policy are still not visible on the zloty. Moreover, the scenario of the EUR/PLN going below 4.45 seems to be increasingly distant.

The pound is at a relatively high level as well. For one month the British currency has gained more than 5% against the euro. However, the zloty lost 2.5% against the euro since the first decade of November. The pound increased by approximately 0.40 PLN over one month. Additionally, the GBP has been reacting positively to the strong dollar and the British economic data do not show that Brexit has caused an economic slowdown. This may cause that the Bank of England will change its attitude to neutral, instead of sustaining the perspective of further monetary stimulation. Moreover, this institution may start suggesting rate hikes in the future. This should keep the pound relatively high against the zloty, even taking into consideration the return of the mid-term Brexit anxieties.

12 Dec 2016 12:54|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.

See also:

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Afternoon analysis 08.12.2016

8 Dec 2016 12:51

Daily analysis 08.12.2016

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