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Daily analysis 16.09.2014

16 Sept 2014 12:28|Marcin Lipka

A clear impact on the pound after Scottish election. The rouble's sell off significantly sped up. Hard decision for the Swiss Central Bank. The zloty remains close to 4.20 in anticipation for Federal Reserve decisions and developments in the East.

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

  • No macro data that may significantly affect analyzed pairs.

Scotland. SNB. Ruble

The closer we got to the Scottish voting, the more analysis regarding the hypothetical consequences of the referendum. Reactions, however, may be different taking into account available assets. Government bonds should lose value (increase yields) due to extended risks that the UK would acquire most of the debt and the sentiment toward Britain may worsen but, on the other hand, the Bank of England would probably extend its zero-interest-rate policy what should push the yields lower and increase the gilts value.

Regarding stocks the moves are also unclear. Banks may still remain under pressure if their strategy is scheduled to be revised or headquarter moved to England after the “yes” wins. Some stocks, however, may take advantage of weaker currency and benefit from higher margins on exported goods and services.

There are very few doubts concerning currency reaction. The sterling will be under pressure both from economy (worsening sentiment toward the UK, risks of lower rating and threats from higher current account deficit – more oil will have to be imported), and due to looser monetary policy (BoE will be reluctant to rise interest rates in an unstable environment).

The initial slide of GBP/USD will be probably stopped by 1.50-1.55 levels. We should not, however, expect to return toward current levels quickly due to the fact that British currency would be under pressure from ongoing discussion on separation, debt share and access to oil. The issue will probably take a toll on both consumer and business confidence so the weight on the pound should be long lasting.

Thursday session should not only be important due to Fed's decision consequences and Scottish voting results. The Swiss Central Bank (SNB) also announces its decision in two days. The monetary authority based in Zurich has a difficult task to process. How to stop the capital flow into the franc after the recent ECB decision, and at the same time keep the EUR/CHF floor at lowest possible cost.

One of the idea is to introduce the negative interest rate. Such resolution is predicted by 10 out of 24 economists asked by Bloomberg. Five others claim that the SNB will resume its currency intervention process which has been halted for two years. No matter which solution is chosen the Swiss Bank would be committed to keep the rate above 1.20 per the euro. Most economists also predict that the SNB will remain the floor till 2017 or longer. It means any increases of CHF/PLN will be only caused by the EUR/PLN appreciation and not from global Swiss franc strength which was observed before August of 2011.

In the recent hours the situation on Russian ruble worsened markedly. We wrote yesterday on mounting problems of the local currency while it was testing 38 level for the dollar. Today we are approaching 39 mark. The move around 2% in one day during a relatively calm session on other Emerging currencies should be regarded as a significant warning sign. Additionally, during such unstable market many rumors circulates around the market.

Moreover, according Alexander Golovtsov, chief analyst at UralSib Asset Mangement cited by Reuters “Russian companies have around $20 billion in foreign debt payments due in September”. It may also be another source of pressure on the currency, even though the information was probably public for several months.

The rouble slide can be stopped by central bank which still owns more than $450 billion in currency reserves. But the CRB is not really eager to intervene on the market after it pledged a free-float rouble in 2015. We could, however, assume that when the rate hits 40 rouble per the dollar it will be pretty difficult to deal which such depreciation both from monetary policy and from the public so the intervention should be expected.

It is also worth noting that the RUB slide is hurting Polish exporters. The local companies will have to cut their margins or their sales would drop. We should remember that Kremlin sanctions imposed on Polish foods account for around 10% of export to Russian Federation (800 million euro). The remaining 7.2 billion will have to deal on much tougher conditions (both political and economical).

Summarizing, incoming days will be really interesting on currency markets. On Wednesday afternoon a crucial Federal Reserve meeting will be held and just one day later Scottish referendum results will be revealed to the markets.

No major changes

Monday's inflation and the BOP data didn't change the approach to the zloty. The CPI was in line with expectation and the current account balance reminded around zero (with slight surplus in the goods exchange). Commenting the inflation data the Economy Ministry claims that prices in September may drop to minus 0.5% y/y but it will the lowest reading for the whole year and afterward we should see a slight increase.

The readings also shouldn't change the MPC approach toward monetary policy. We should assume with a high degree of probability that in October 6 members (Bratkowski, Chojna-Duch, Hausner, Osiatyński, Zielińska-Głębocka and governor Belka) would favor at least 25 bps rate cut. Others (Glapiński, Kazimierczak, Rzońca and Winiecki) will probably remain hawkish and are not expected to approve monetary expansionary.

In the following hours the zloty should be traded very close to the current levels (if the situation does not worsen in the Eest) to most other currencies. More volatility is expected on both Wednesday's and Thursday evening when we receive FOMC statement and Scottish referendum results respectively.

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

Range EUR/USD 1.2950-1.3050 1.2850-1.2950 1.3050-1.3150
Range EUR/PLN 4.1800-4.2200 4.1800-4.2200 4.1800-4.2200
Range USD/PLN 3.2200-3.2600 3.2400-3.2800 3.2000-3.2400
Range CHF/PLN 3.4400-3.4800 3.4400-3.4800 3.4400-3.4800

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

Range GBP/USD 1.6050-1.6150 1.5950-1.6050 1.6150-1.6250
Range GBP/PLN 5.1900-5.2300 5.1700-5.2100 5.2100-5.2500

16 Sept 2014 12:28|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:

15 Sept 2014 17:34

Afternoon analysis 15.09.2014

15 Sept 2014 12:33

Daily analysis 15.09.2014

12 Sept 2014 17:17

Afternoon analysis 12.09.2014

12 Sept 2014 12:32

Daily analysis 12.09.2014

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