Daily analysis 13.08.2015

The People's Bank of China during the conference tried to control the rapid movements of the local currency. It remains unclear what Germany will do with the Greek bailout plan. The zloty is slightly stronger to the euro, but today's data on the current account balance may be weaker than expected.

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

• 14.00: Polish Balance of Payments (survey: current account balance +353 million euros, trading goods balance +849 million euros).
• 14.00: Polish CPI (survey: minus 0.2% m/m and minus 0.8% y/y).
• 14.30: Retail sales from the US (survey: +0.6% m/m; excluding gasoline and cars: +0.4% m/m).

China tries to calm down turmoil

Comparing to yesterday's close the yuan didn't change much. During the night, the People's Bank of China (PBOC) run a conference which aimed to calm down the fears regarding further renminbi devaluation.

Yi Gang, deputy governor of the PBOC suggested that the central bank would like to create “normal” changes on the yuan. Regarding the CNY, it may mean more market forces to value the currency especially when the depreciation forces occur. On the other hand, the PBOC would probably like to protect the market from too much volatility by direct interventions.

The PBOC strongly rejected calls that China would like to devalue the CNY by 10%. Yi Gang called them “nonsense”. It looks, however, that the Chinese authorities can be blamed for such a situation. They started to devalue the currency shortly after the weaker trade data were reported. It may suggest that at least partly the move was forced and the case regarding the inclusion of the yuan to the reserve currency mechanism, which requires a free market exchange rate, was rather used as an excuse.

Currently, however, the PBOC would like to calm down the situation on the yuan. It might not be that hard especially as Beijing has ample currency reserves. But, in the longer term when more pressure comes from a weaker economy we will see similar moves to the ones observed this week. The reaction is expected to be similar on the other asset classes around the world. Investors may even start to look at the CNY as a kind of benchmark for equities, bonds and currencies. Moreover, the barometer can even work on only just the rumours of the PBOC actions.

German stance on Greece is still unclear

It is still not clear whether Germans accept the working group deal on Greece. Today's “Financial Times” claims that Wolfgang Schauble presented his reservations on the plan for Athens.

Germans say that the implementation of some of the reforms are delayed in the MoU to October or November. Some of them are not even included writes the “FT”. Berlin is also concerned by the proposition to delay the establishment of the privatization fund.

However, taking into account the other comments from the eurozone members, it looks like the deal is expected to be agreed upon and the German finance minister is also going to accept it. To calm some Berlin reservations the bailout may be transferred in small tranches to keep pressure on Greece to go further with the forms. But such a tight grip on Athens can also create more turmoil in the society even before the planned election later in the year.

In the short term and medium term the agreement should be positive news especially for the EUR/CHF, which should continue its appreciation trend.

The foreign market in a few sentences

After a good session on the US capital markets and today's PBOC conference the expectations for an interest rate hike in the US rose again to around 50%. The odds for the Fed's tightening next month may even be raised if solid data from the States are reported today. Both issues should be positive for the dollar and can push the EUR/USD in to the mid 1.10 range.

Current account data

The EUR/PLN pair dropped today to around the 4.18 level. The appreciation move on the zloty can be, however, halted today after the current account data. According to Bloomberg, traded balance consensus recorded a surplus of around 800 million euros in June.

However, according to the GUS data on foreign trade, published yesterday for the first half of 2015, the balance didn't change at all comparing to the publication from January to May. The monthly data from the NBP may be slightly deviated, but it will be hard to get a 3 billion PLN surplus for June.

This issue may cause the Polish economy to record a significant deficit, instead of the 300 million euro C/A surplus which is expected. As a result it is a negative element for the zloty, which may even push the EUR/PLN towards 4.19-4.20.

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

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