Daily analysis 21.11.2016

The currencies became stable after the recent strong growths of the dollar. Dudley spoke of higher infrastructural expenses, as well as of the dollar. Agreement between the oil producers is increasingly closer. The zloty is slightly gaining value. Moddy’s agency claims that a decrease in retirement age is negative for Poland’s rating.

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

• 14.00: Polish industrial production for October (estimations: 1.0% YoY).
• 14.00: Polish construction production (estimations: negative 15.9% YoY).
• 14.00: Polish retail sales for October (estimations: positive 4.2% YoY).

Calmer sentiment

After recent strong growths of the American currency (the dollar’s index reached its thirteen-year record), this week has started relatively calm. The EUR/USD has slightly corrected its recent depreciation and the USD/JPY is going above the level of 111. However, it’s worth noting that the profitability of the American treasury bonds are still relatively high (2.3% for ten-year bonds and 1.05% for two-year bonds).

Four FOMC representatives have made their testimonies since Friday afternoon. William Dudley’s testimony was the most interesting. The New York Federal Reserve chairman (with a constant right to vote) didn’t refer to the matter of changes in fiscal policy in his official testimony. However, he spoke of this topic during the Q & A series.

Dudley said that there is a significant element of uncertainty regarding changes in fiscal policy for the time being. However, he claimed that infrastructural expenses are a positive thing. There was also a question regarding the recent appreciation of the American dollar. Dudley clearly claimed that this was a consequence of changes in expectations regarding the monetary policy. Moreover, this is not a reason to be concerned, in his opinion. This goes to show that Dudley’s views are consistent with the Fed’s consensus, which states that it’s too soon for specific decisions regarding fiscal changes, as well as that the recent changes in the market are not a reason for a concern.

Moreover, taking into consideration previous announcements from the Fed, the current market behavior gives the central bank more space. By estimating rate hikes, investors are causing the FOMC to potentially follow them (which would be a relatively neutral behavior) or change the pace of the monetary tightening at will. Previously, the space for the Federal Reserve’s actions was limited. This is because the market kept interest rates expectations near zero. Therefore, their decrease would be impossible if needed.

OPEC on its way to agreement

Weekend had brought a few announcements from the OPEC representatives, as well as from the Russian representatives. These announcements referred to the meeting in Vienna, which is scheduled for November 30th. The Iranian oil minister claimed that a consensus is possible. Moreover, Iraq was to make offers that would stabilize the market.

On the other hand, the Russian President Vladimir Putin said that, “I don’t see why an agreement can’t be achieved this month. Russia is ready to freeze its oil production at the current level.”

Since the meeting in Algeria, we have been sustaining out view that OPEC members will most likely limit their mining by approximately one million barrels per day, for at least six months with a possibility of extending this period. On the other hand, Russia will leave their production level unchanged. This scenario should move the WTI quotations to the range of 50-55 USD per barrel. This would also be positive for the oil exporting currencies. Depreciation pressure on the Mexican peso may become slightly decreased. However, the Canadian dollar, the Russian ruble and the Norwegian krone may gain value.

Significant data from Polish economy

Due to a calmer sentiment in the global market, the zloty worked-off its recent wear-off. However, the Polish currency remains weak, even though the euro, as well as the dollar, are by 0.02-0.03 PLN cheaper than they were on Friday. The PLN/HUF remains near its three-year minimum. This means that the zloty’s weakness is partially caused by local problems.

This morning, the Moody’s agency (cited by the Polish Press Agency) informed that, “a decrease in retirement age is negative for Poland’s rating.” On the other hand, Barclays downgraded its forecasts for Poland’s economic growth (2.5% in 2016). Today’s data from the Polish Central Statistical Office will be significant for the Polish economy, especially the data regarding construction production, which is strongly related to infrastructural investments. Taking into consideration that it was decreasing above the pace of 15% YoY, our scenario that the GDP in 2016 would reach the level of 2.0% may not be simple to achieve.