Daily analysis 17.02.2016

A meeting in Tehran between the representatives of Iran and Iraq, concerning coordination actions regarding oil production. Yesterday's statements from Harker and Rosengren from the Fed were dovish. The zloty takes advantage from a better sentiment. Kropiwnicki is skeptical about modifications of the monetary policy.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 14.00: Industrial production from Poland (estimations: +2.9% y/y).
• 14.00: Retail sales from Poland (estimations: +2.9% y/y).
• 14.30: Construction works permissions in the USA (estimations: 1.2 million).
• 14.30: Initiated investments in the American real estates sector (estimations: 1.17 million).
• 15.15: Industrial production from the USA (estimations: +0.4% m/m).
• 20.00: Publication of the recent Federal Reserve meeting.

Once again oil creates sentiments

Yesterday, a positive correlation between oil and the American shares market was disturbed, due to a direct reaction of the WTI and Brent to not creating sufficient enough limits in the Russian and Saudi Arabian production of oil. Today, however, the expectations before the meeting between representatives of Iraq and Iran, are once again causing an increase in prices of raw materials, and an improvement in the capital market.

A meeting in Tehran is intended to be a next element to convince the oil market participants that the oil producers will not increase production. In the case of Iraq, investors may actually expect that this country will accept the agreement about not exceeding the current level of production. That is because between mid-2014 and mid-2015, it had been increased by 1-1.2 million barrels. For several months, it is kept on the level of 4.2-4.4 million barrels per day, which is also of historical value.

Production in Iran is still by approximately one million barrels lower than before the introduction of sanctions. Thus, it is difficult to expect that this country would agree to keep it on the current level. However, it is possible that Iran might gain a possibility of increasing the production to a specific level, which cannot be crossed.

This scenario could cause supply and demand to equalize more quickly, despite the fact that the market would still need many months to balance. It could stabilize the prices, and even increase a chance for some visible rebound on the WTI and Brent.

Dovish Fed

Yesterday, there were two testimonies of Federal Reserve representatives. Patrick Harker from Philadelphia, despite emphasizing the positive processes going on in the American economy (such as a rapid increase in employment, increase in salaries, increase in consumption, and a good condition of the financial system), took note of dangers coming from abroad, and a risk of slower than assumed economic development.

However, the most important statement was that, “it may appear reasonable to see if inflation begins to grow, before making a decision about the second increase in interest rates”. This is quite an unambiguous suggestion, especially considering that Harker also took note of the fact that, “inflation will probably not grow directly in the first six months of 2016”.

Rosengren's testimony was definitely more dovish. However, this should not be a significant surprise, since the Fed representative from Boston was skeptical regarding monetary tightening for a long time. Although, some of his statements could be surprising.

Rosengren is considering a concept of establishing expectations regarding inflation, in the area of two percent. In his summary, on the other hand, he makes a remark: “personally, I do not think that there is a need to raise interest rates before the economy returns to a growth coherent with its potential”.

Due to the general statements from the both Fed representatives, we may assume that the decision regarding the second increase in interest rates, can be postponed for the second half of 2016. Certain signals regarding this attitude should be already visible in the minutes from the Fed meeting in January, which will be published today. Thus, there may be a certain pressure on the American dollar, especially if the signs from the oil market do not take a clear initiative.

Zloty is slightly stronger

The local matters still have a small impact on the zloty. The signals are mostly created by a general market sentiment. Today, it definitely improved before noon. This reflected in a strengthening of the zloty, as well as the forint. The EUR/PLN is currently in the area of 4.39, and the CHF/PLN dropped to the value of 3.98.

Jerzy Kropiwnicki spoke about the monetary policy on the third program of the Polish Radio. A recently assigned representative of the MPC, said that he would not hurry to change interest rates. Moreover, he expects the new Council's members to be “cautious” regarding the monetary policy. According to him, the Polish GDP will increase by 3.5-3.6% y/y this year. Kropiwnicki's statements match the suggestions of other monetary authority members, saying that currently it is not a good moment to modify interest rates.

Today, it is possible that the signals from abroad (especially within the oil market) will remain dominating, despite the fact that data about retail sales will be the main event on the national market. If the sentiment clearly deteriorates, the EUR/PLN should remain closer to 4.40, and the franc will not cross 4.00.