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Daily analysis 13.01.2017

13 Jan 2017 12:40|Marcin Lipka

Some of the FOMC members suggest to reduce the Fed’s balance. Increasing pressure on the Czech krona. Next week will be significant for the pound. No larger changes on the zloty before the decisions from both Fitch and Moody’s.

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

  • 14.00: Poland’s current account for November (estimates: negative 319 million euro).
  • 14.00: Final readings of Poland’s inflation for December (the initial data was at the level of positive 0.8% YoY).
  • 14.30: The American producer inflation for December (estimates: positive 1.6% YoY; excluding fuel and food: positive 1.5% YoY).
  • 14.30: The American retail sales for December (estimates: positive 0.7% MoM; excluding fuel and cars: positive 0.4% MoM).
  • 16.00: The University of Michigan consumer trust index for January (estimates: 98.5 points).

Dollar remains under pressure

Yesterday’s testimonies from the Federal Reserve members were neutral for the market. The FOMC chairwoman also focused on the main topic of her testimony, which was education. It seems that James Bullard’s testimony was the most interesting.

The St. Louis Fed chairman is currently the most dovish representative of the American monetary authorities. He sustained his view regarding just one rate hike until 2019. However, his testimony also included a potential reduction of the Federal Reserve’s balance.

Initially, this would concern the lack of reinvestment interest, which derive from the bonds that the FOMC gathered during the QE operation. This initial stage of withdrawal from monetary easing shouldn’t significantly impact the debt instrument market. However, the market may fear that the Fed may actually reduce its bonds.

Nevertheless, this may transform into an increase in profitability of the American debt, as well as to tightening of the monetary conditions. If this element overlaps a milder monetary policy and rate hikes, it may give a strong impulse for the dollar’s appreciation.

When it comes to the forthcoming days, the market is still disappointed with Trump’s testimony. Instead of references to lower taxes, infrastructural investments and reduction of regulations, we heard many protectionist statements. Unfulfilled expectations and anxieties regarding the fiscal stimulation, may continue to wear-off the dollar in the short-term, especially if Trump’s economic concepts differ from concepts of Congress. However, despite the current problems, we expect legislative changes that will significantly decrease taxes (for companies and households), as well as a moderate increase in expenses. This should support the dollar.

Czech krona and British pound

We repeatedly took note that pressure on the Czech krona has been increasing since the Czech central bank resigned from keeping the EUR/CZK exchange rate above 27.00. The behavior of the Czech debt pictures this phenomenon very well. Profitability of the one-year treasury bonds are currently below negative 1.6%. A foreign investor who would buy them, needs to keep in mind the Czech krona needs to strengthen at least 1.6%, so that his balance will be at the level of zero. This may also be a reference point to how much can the krona gain after the Czech monetary authorities resign from controlling its exchange rate.

Yesterday, the market received an information that the British prime minister will make her testimony regarding Brexit on Tuesday. Investors fear that this testimony will suggest that London wishes to reduce immigration and agrees on limited access to the EU market. This may also decrease chances for a temporary agreement, which would decrease time pressure of the two-year negotiation period. Since yesterday, the pound has lost approximately 1% against the main currencies and the GBP/PLN tested the level of 5.00 today.

Calm zloty

Apart from the decisions from Moody’s and Fitch, the market will receive the data regarding inflation today. Investors will focus on the potential price growth in the future and which categories (apart from fuel) will contribute the most to potential changes. It will be important not only to observe the foreign trade balance, but also the capital account, which informs about the inflow of the EU funds. This allows to evaluate the chances for an increase in investments.

It’s also worth keeping in mind the macro data from the USA. The retail sales data, as well as the consumer sentiment should show attitude of households at the break of 2016 and 2017. If the consumer optimism continues to grow, this may slightly decrease the scale of the dollar’s recent overvalue. When it comes to Poland’s rating, we claim that the basic parameters of loan credibility will remain unchanged. However, this shouldn’t cause a larger reaction on the market.

13 Jan 2017 12:40|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:

12 Jan 2017 16:30

Afternoon analysis 12.01.2017

12 Jan 2017 13:07

Daily analysis 12.01.2017

11 Jan 2017 16:12

Afternoon analysis 11.01.2017

11 Jan 2017 13:26

Daily analysis 11.01.2017

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