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Daily analysis 13.10.2014

13 Oct 2014 12:38|Marcin Lipka

The second most important person in Federal Reserve is concerned with the slower economic growth abroad. In third quarter China could have developed slowest since 2009. Meeting of Poroshenko and Putin in Milan. Five members of MPC spoke about the country's future monetary policy. The zloty is stable and no bigger changes in relation to euro or franc are expected.

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

  • No macro data which may affect the analyzed pairs.

Fischer. China. Ukraine

Many central bankers spoke on previous week's annual meeting of International Monetary Fund and World Bank. However, it was the weekend comments of Stanley Fisher which caught most of the attention.

Wednesday's “minutes” showed us the concern on too expensive dollar and negative consequences of recent raising the interest rates instead of more hawkish approach of Fed members. Thus the market, which is currently set “pro-dollar” way, begins to listen to the information, that could more seriously disturb “the buck's” appreciation trend.

These information include among others the statements of Stanley Fisher. vice president of the American Federal Reserve said, that “if the economic growth abroad will be slower than we have expected and will translate negatively on the American economy, it might force Fed to walk away slower from the accommodative monetary policy”. Later raising of the interest rates is a negative signal for the American currency, which causes that during the European session EUR/USD is noted clearly above 1.2650.

It was not only the references to the monetary policy themselves that weakened “the buck”. Fisher, who was earlier the chief of Central Bank of Israel, has certainly more global approach, than other FOMC members. It may also cause a greater “sensitivity” of Federal Reserve in planning the monetary policy in the future. In the current environment, it will rather decrease dollar's appreciation appetites, than increase them.

Today „The Wall Street Journal” has published a survey, which indicates that next week's readings of Chinese GDP (October 21st), might be weakest since March 2009. According to the median of economists asked by “WSJ”, in third quarter China has developed in the tempo of +7.2% y/y. It does not have to mean, that the weakest economic growth from over four years, would cause a great evaluation of prices on shares' markets or a clear enforcement of dollar. For a longer time now there are speculations, if the clear slowdown of Chinese economy, will cause a more decisive stimulating actions of Beijing. In consequence, they should maintain the development in limits of 7.5% for the end of the year, even despite the recent prognoses revision downwards for the whole world.

According to the Russian information agencies (“TASS” and “Ria Novosti”), a meeting between presidents Poroshenko and Putin will occur, during the Asian and European countries summit, which is held every two years. Russian leader will also meet the German chancellor and French leader. Additionally, as written in “WSJ”, Kremlin spokesperson announced, that Putin ordered the retreat of few dozen thousands of soldiers, from the areas close to the Ukrainian boarder.

The above scenario fits into a very slow improvement of the relations between the West, Ukraine and Russia. If the election for parliament in Ukraine planned for October 26th will run in a peaceful atmosphere, and the further understandings from Minsk will be respected (buffer zone, boarders monitored by OSCE, authority's decentralisation etc.), we can expect wider talks about the reduction of European – Russian sanctions. Additionally, by the end of October there should be an understanding between Kiev and Gazprom, about the gas supply for our south-eastern neighbour. Thus we can expect, that the topic of Ukraine should be more and more noticable by the global markets and only region's currencies (especially the Russian rouble) will react clearer on the partial information from that part of Europe.

In conclusion, today's quotes on EUR/USD should be relatively calm. As the events from the weekend are already included in prices and macroeconomic calendar is empty, we should not expect increased diversity on the main currency pair and the majority of transactions, should be made in the division of 1.2650 – 1.2700.

A spill of MPC members' statements

Monday brings a publication of five MPC members' statements. One of the most interesting opinions was published by Polish Press Agency. In her interview for this agency Elżbieta Chojna-Duch claims, that “the interest rates cut in October was deeper than everyone expected. It would be good if we would give ourselves some time for judging its effects”. It may mean, that there might be a certain views dissonance in doves' camp (it decreases the chances for cutting in November).

It might have been indicated by the statement of Andrzej Bratkowski for Bloomberg in which he claims that if the economic situation does not improve, the Council could cut the interest rates even by next 75 base points (on contrary to Chojna-Duch, Braktowski still wants to soothe the monetary policy).

The statement of the chairman Belka's was close to the market consensus. In his interview for Gazeta Wyborcza, just as on the press conference after MPC summit he claimed that the decreases should be concentrated in time, but he did not exclude one more (probably a small one) cut. However, there was one surprise form the chairman. He said, that the consumers inflation will not cross the level of 1.5% within two next years. If Belka's words would be coherent with November's inflation projection, it would mean that the path of CPI for the year 2016, would be reduced by 1 per cent in relation to July's estimations. That on the other hand, would be a strong argument, to decrease interest rates by 25 base points on upcoming summit.

We have received no surprises from the hawkish members of MPC. In Washington D.C. Jan Winiecki said, that the interest rates decreases are pointless, because they do not revive the inflation or growth of GDP anyway (probably as a reference to the fact, that the world's economic growth is weak, and the global inflation will remain low, so the local actions are not that important). On the other hand, Adam Glapiński in his statement for Polish Press Agency said, that “personally I do not see any space for further decrease of interest rates”.

In conclusion, the market will still hesitate between the scenario of maintaining the interest rates on the current level or a decrease by 25 points in November. On the other hand, the zloty should be stable today, although the risk of crossing the fluctuation range 4.17-4.18 per euro will remain on the side of minimum eakening of the national currency.

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

Range EUR/USD 1.2650-1.2750 1.2550-1.2650 1.2750-1.2850
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.2800-3.3200 3.3000-3.3400 3.2600-3.3000
Range CHF/PLN 3.4300-3.4700 3.4300-3.4700 3.4300-3.4700

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

Range GBP/USD 1.6150-1.6250 1.6050-1.6150 1.6250-1.6350
Range GBP/PLN 5.2900-5.3300 5.2700-5.3100 5.3100-5.3500

13 Oct 2014 12:38|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 Oct 2014 21:39

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10 Oct 2014 13:58

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Afternoon analysis 09.10.2014

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