Daily analysis 14.07.2014

Interesting comments from the FOMC members on Friday. Lockhart is revealing what Yellen may say during the Congress hearings on Tuesday and Wednesday. Draghi in the European Parliament. Weak European production. The zloty remains stable and waits for the global events.

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

• 19.30 CET – 21.30 CET: Monetary Dialogue with Mario Draghi, President of the European Central Bank (The Draft Agenda from Committee on Economic and Monetary Affairs of the European Parliament).

Signals from the FOMC. Draghi. Production

Portugal fears have quickly disappeared from the markets. It seems that the amount of money which is involved in the case can be accounted at around 1 billion USD, what in global or European context seems to be a fairly small value. Situation looks much more interesting on the other side of the pond where we had some statements from three FOMC participants. It can be a reason why we see a bit softer dollar in the morning.

The market is usually interested in comments which come from either fairly neutral MPC members or those who seem to be changing camps. In result, the statement from Charles Plosser (hawkish) or Charles Evans (dovish) did not bring too much attention. The first one, who has never been really an QE advocate, would like to start tightening the monetary policy fairly soon given the fact that we are getting closer to the FOMC target (both on inflation and the unemployment). The latter, on the other hand, seems to stick to the low interest rate for longer (first part of 2016). Evans also claims that the increasing inflation should not be an issue unless we move above 2.5% and we need to see more wage growth (3.5% ; currently there is only 2.5% y/y).

Much more attention should be paid to the Bloomberg interview with Dennis Lochkhart. Despite is a non-voting member this year the Atlanta Fed President is close to the FOMC consensus. However, taking the inflation and employment data into account, he sounded really dovish. He claims that the interest rate hike should take place in the second half of 2015 and the recent PCE data is not really clear do the gasoline and energy cost increase (kind of risky statement as the core PCE also rose markedly). He also said (getting closer to Evans vies) that he would tolerate inflation “overshooting” to 2.5%. Lockhart also claimed that the recent employment report wasn't that great due to an increase of part-time workers.

The most important message form Lockhart we received at the end. Michale McKee from Bloomberg tricked the Atlanta Fed's chair a bit, asking him what might Yellen say during her hearing before the Congress. The FOMC member said that the Chairwoman would probably stick to the view that the interest rate might rise in the 2nd half of 2015, and any market bubbles should not be dealt with the monetary policy tightening. Both comments look pretty dovish regarding the recent data and if Yellen repeats Lockhart's view we should see some dollar slide and stock market rise.

From the other data it is worth noting the May industrial production report from European Union (quite disappointing even taking into the account that it matched the forecast – only +0.5% y/y) and Mario Draghi discussion at the European Parliament. The ECB chief will probably get some questions on further asset purchase operation. If he sounds less dovish than during the last MPC conference, we can see a slight Euro appreciation but the volatility should be quite low and most market participants should wait for Yellen's comments on Tuesday.

Quiet on the zloty

The trading on the PLN is fairly calm and most transactions are made around 4.14 per the Euro. Industrial production published by Eurostat looks quite grim from Poland (the market pays more attention to the GUS number). According to the data (working day adjusted) the production rose only 2.2% y/y on May, whereas in the first half of the year we had readings around 5%-6%. Poland looks also quite disappointing in comparison to other CEE countries – Czech Republic, Hungary, Slovakia or Slovenia).

The market however, is looking forward to the June data which is scheduled to be published on Thursday. If we get another soft number (below the Ministry of Economy 4.0% estimate), we may expect more discussion about possible rate cut what should bring some downward pressure on the zloty. Today however, the trading will be rather calm and most investors will be waiting for chair Yellen testimony on Teusday.

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

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