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Daily analysis 13.04.2015

13 Apr 2015 13:11|Marcin Lipka

A significant appreciation of the US dollar from the beginning of the European session. Weak data from China may still be a consequence of some fake transactions with Hong Kong. The EUR/PLN remains slightly above 4.00. The Polish deputy finance minister sees chances to leave the deflation area earlier than NBP projected. A central bank management board member on stronger zloty.

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

  • 14.00 CET: Current account from Poland (survey: surplus of 143 million euro).

Further dollar appreciation

The “greenback” has been strengthening since the morning. During the Asian session, the dollar was mainly stronger to the Australian and New Zealand currency after weak trade data from China. However, when the European session began the EUR/USD was also hurt.

Investors are still not eager to generate a rebound on the most heavily traded pair. Fears on the looming Greek deadline and lower expectations before the Chinese GDP reading pushed traders to safe haven assets. Moreover, the recent weak readings from the US are probably transitory factors, so expectations for the coming monetary tightening may be exaggerated. It is also confirmed by higher yields on US treasuries which almost topped 2.00% on 10-year bonds.

A good test regarding the US economy conditions should be tomorrow's retail sales readings. The index was negative for two months in a row even when we excluded gasoline and cars. Currently, the economists' expectations are set around +0.6% m/m. Only significantly weaker data may bring some doubts to the Q2 expected recovery.

Chinese data on foreign trade

Once a year we observe a dramatic fall in Chinese trade balance surplus. Today, it turned out that it dropped to 3 billion USD while the average is around 40 billion. Both in February 2013 and 2014 the situation was even worse because Beijing registered a trade deficit with the rest of the world.

However, it is almost always a one time event and in the following months all usually returns to normal. But the market reaction is often quite nervous. Usually the AUD and NZD are under pressure. A similar case was observed today. What is even more interesting is that it is most probably a result of a specific event.

Mainland China companies have a strong trade surplus with Hong Kong. However, for years the Chinese export to “HKG” has not met the “HKG” import from China. The difference was not trivial and topped even 30 billion in some months. Currently, the value is much smaller but after some time the data gets more realistic and a significant slump in trade activity is reported.

The elevated data is a result of Chinese companies faking transactions. They report export invoices and are able to bring hard currency home. Further, they use the interest rate differentials to gain almost risk free money due to the fact that the RMB is almost pegged to the USD. Beijing claims that it is fighting with the procedure but it hasn't succeeded yet.

As a result, the one-time trade slump should not be regarded as a dramatic condition of the Chinese economy. There is a high probability that in the following months the situation will return to more usual values.

The foreign market in a few sentences

A broad dollar strengthening and the weakening of the euro condition caused the EUR/USD is heading towards 1.0500. Today, the situation should not change much due to the fact that the macroeconomic calendar is virtually empty. However, tomorrow only weak US data or a breakthrough regarding Greece may significantly weaken the dollar.

Stable before the MPC meeting

Eugeniusz Gatnar, the central bank management board member cited by Reuters told the Polish Press Agency that the stronger zloty to the euro is not a concern and it is a result of issues regarding QE in the eurozone. Additionally, the deputy finance minister Dominik Radziwill claimed that Poland may leave the deflationary territory earlier than the central bank predicted in its most recent Inflation Report.

Despite the fact that both Gatnar and Radziwill do not have a direct impact on the monetary policy, their opinions, combined with some short Remarks from minister Szczurek, may mean that the odds for verbal intervention are quite slim.

Moreover, even governor Belka was concerned with the stronger zloty, he would rather wait a bit longer and use the tool when the market gets more nervous regarding the possible intervention. Currently, it may fail to meet expectations and the zloty continues its appreciation path.

Summarizing, we do not expect a significant intervention from the MPC during the forthcoming meeting. Neutral or favourable global conditions could also cause the EUR/PLN to drop to the 3.95-3.98 range before the end of the week.

Today, it is worth looking at the trade data. If the trade account surplus remains around 1 billion euro, we should expect the current account to be balanced for the next month in a row. It should be helpful for the local currency.

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

Range EUR/USD 1.0750-1.0850 1.0650-1.0750 1.0850-1.0950
Range EUR/PLN 4.0000-4.0400 4.0000-4.0400 4.0000-4.0400
Range USD/PLN 3.7000-3.7400 3.7400-3.7800 3.6600-3.7000
Range CHF/PLN 3.8400-3.8800 3.8400-3.8800 3.8400-3.8800

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

Range GBP/USD 1.4850-1.4950 1.4750-1.4850 1.4950-1.5050
Range GBP/PLN 5.5000-5.5400 5.4800-5.5200 5.5200-5.5600

13 Apr 2015 13:11|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.

See also:

10 Apr 2015 18:13

Afternoon analysis 10.04.2015

10 Apr 2015 13:01

Daily analysis 10.04.2015

9 Apr 2015 17:29

Afternoon analysis 09.04.2015

9 Apr 2015 13:22

Daily analysis 09.04.2015

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