Daily analysis 17.11.2016

The dollar slightly lost its value before Janet Yellen’s testimony. However, there is a minor chance that the Fed’s chairwoman would vary the tendencies of the American currency. What impact will the expected repatriation of profits of the American companies have on the dollar? After reaching the level of 4.18 yesterday, the USD/PLN is slightly decreasing. However, it still remains near its maximum.

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

• 14.00: Publication of Janet Yellen’s testimony.
• 14.30: Construction permits in the USA and initiated investments in the real estate sector (estimations: 1.19 million and 1.15 million, respectively).
• 14.30: CPI inflation in the USA (estimations: positive 1.6% YoY, excluding fuel and food: positive 2.2% YoY).
• 14.30: Weekly jobless claims in the USA (estimations: 257k).
• 16.00: Start of Janet Yellen’s testimony in front of the Economic Committee of the American Congress.

Yellen’s testimony

Despite macroeconomic data series from the USA (the real estate, inflation, jobless claims), the market will most likely focus the most on today’s statements from Janet Yellen. Her testimony will be published two hours before her official appearance in front of the Economic Committee of the American Congress. However, it seems that we will find out more from the Q & A series, which will start after 4.00 PM.

The market participants will mainly try to guess Yellen’s attitude towards the plan of increasing the fiscal expenses. Theoretically, her comments should be relatively positive. This is because representatives of the developed market central banks have been pointing out the necessity of increasing the American investments for several months (in order to increase the country’s economic growth in the future.) Moreover, they have been convincing that the monetary policy might not be the only remedy for a weaker business cycle.

Taking into consideration that these details are not included in plans of the new Republican administration, Janet Yellen (as well as the rest of her associates from the Fed) will try to include the uncertainty regarding fiscal changes in her statements. However, if there is a difference in opinion between Yellen and the Congress representatives regarding tax decrease, as well as increase in expenses, it will seem that a more restrictive monetary policy would be required, in comparison to the scenario of the lack of fiscal stimulation. This could either extend the dollar’s strength, or cause that the work-off of its recent growths will be more shallow.

Profit repatriation

Yesterday, we wrote about a hypothetical repatriation of profits of the American enterprises, as well as its impact on the dollar. We took note that this may be positive for the USD. However, the scale of this element is difficult to estimate, due to limited information regarding this topic.

However, Bloomberg looked at this topic a little bit closer today. In the analysis entitled “A $2.6 Trillion Myth: For the Dollar, Trump Tax Holiday is a Dud”, the agency pointed out that, “Apple has the most funds abroad and, according to its former employees who have a direct knowledge regarding this topic, more than 90% of its 216 billion USD is expressed in dollars.”

Bloomberg also took note that, “in the case of the second largest American company which keeps its funds abroad, Microsoft, 66% of their assets are bonds, which are denominated in dollars.” Moreover, the agency quoted a statement from Richard Lane, who is senior analyst of Moody’s Investors Services. He claimed that, “none of this information has been revealed, but the majority of funds (which are deposited abroad – author’s footnote) is currently expressed in dollars.”

As a result, profit repatriation may have a relatively minor impact on the dollar in the short-term. This is because, as Bloomberg claims, a small portion of this profit is expressed in a different currency than dollar. Therefore, it will not be necessary to exchange these funds to the USD and the demand for the American currency doesn’t have to increase significantly.

Slight wear-off on zloty

The majority of the foreign currencies is cheaper than they were yesterday. However, the work-off was relatively minor. The euro only got cheaper by 0.02 PLN and the dollar remains near its maximum. The zloty worked-off a portion of its losses against the forint this morning. However, the PLN/HUF returned near its three-year minimum at approximately noon. Therefore, the Polish currency remains weak.

Taking into consideration the Polish Sejm’s decision regarding a decrease in retirement age from yesterday, as well as that rating agencies have been considering this decision as negative for Poland’s loan credibility, a discussion regarding Poland’s rating downgrade may return. If we combine this information with a lower economic growth, there may be a risk that the zloty will react nervously on information from abroad. Moreover, if this situation calms down, the zloty’s appreciation may be more shallow than in the case of the forint.

Treasury bond auction today was moderate as well. Investors demanded a 3.01% profitability on instruments with maturity in April 2022. This is a lot, taking into consideration that profitability of the five-year bonds were near 2.8% at approximately noon. The above elements indicate that ifthe dollar’s sentiment remains positive, the zloty’s weakness may increase.