Daily analysis 22.10.2015

The euro slightly lost value pending on today's meeting of the EBC, but Mario Draghi does not have to be very dovish. The zloty works off part of its losses thanks to an interview with the deputy Szałamacha for Rzeczpospolita. Andrzej Kaźmierczak, a member of the MPC, comments on the interest rates and the zloty.

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

• 13.45: Announcement of the decision regarding interest rates in the eurozone (estimations: no changes on the level of 0.05%).
• 14.00: Publication of the discussion from the previous meeting of the NBP.
• 14.30: Press conference of Mario Draghi after the meeting of the EBC.
• 14.30: Weekly jobless claims from the USA (estimations: 265k).
• 16.00: Sale of houses on the aftermarket in the USA (estimations: 5.39 million, the reading was annualised, seasonally equalized).

Draghi at the centre of attention

The surprisingly dovish meeting of the EBC from September brought the EUR/USD below 1.1200, and causes speculations among some of the market's participants that the monetary authorities of the eurozone may suggest an extension of the QE on today's press conference.

However, considering the statements from Mario Draghi, and relatively neutral member of the EBC Board Ewald Nowotny, the European central bankers would prefer to wait for additional macro data. It will allow them to estimate, whether the economic growth is really worse than previous expectations, and inflation does not reach the EBC target in the assumed term.

Additionally, Draghi needs to bear in mind the Fed decision, which is still not clear for the time being. If the “bazooka” (extension of the QE) is used too soon, it may cause the market to get used to bigger monetary stimulation too quickly. Later, it will want to use proper moments for the movement's work off. Especially that a record high surplus on the current account and the return of the capital to the eurozone are good explanations for the enforcement of the euro. A will to keep the common currency weak is one of the elements of the current monetary policy.

This is why today Draghi will probably want to sustain the expectations regarding a wider QE. On the other hand, the EBC chairman should try to keep the market uncertain. Thus, if many investors expect today's testimony to be as dovish as the one from the past month, they might be disappointed. This will cause the EUR/USD to return to the range of 1.1350-1.1400.

Szałamacha slightly calms down the markets

After recent comments from the deputy Kowalczyk regarding the monetary stimulation from the NBP worth 350 billion PLN, today's interview with deputy Szałamacha slightly stabilizes the sentiments. This representative of PiS is picked out for a new minister of economy and claims that the new program is similar to the one used by the Bank of England.

He probably must have meant the „Funding for Lending Scheme” (FLS), which is active for 3 years. However, it is not received in a very positive way, and probably had a very small impact on the economic revival on the British Isles. In his February interview with The Independent, John Allan from the federation of small enterprises, said that “the evidence shows that instead of searching for finances in banks, they (the enterprises – author's footnote) use their own sources and pay debt rather than make it”.

Thus, the market is aware that the huge amounts in the hypothetical program are just elements of the election campaign. It is also aware that it will be difficult to force the industries in Poland to take loans, if this plan did not succeed in the United Kingdom. Another positive aspect for the zloty are the statements regarding the budget deficit.

“We do not want to have a problem with crossing a 3% limit for the deficit, or a discussion regarding the nation's credit rating. We want to conduct a long-range, responsible policy” said deputy Szałamacha to Rzeczpospolita. This also may suggest that the expense plans for the 2016 budget will be changed to a very minor degree, despite the announcements in the campaign. Thus, both of these statements can be taken as a positive sign for the zloty.

Kaźmierczak from the NBP

Mixed signals for the PLN were sent by Andrzej Kaźmierczak in his interview with Bloomberg. The representative of the MPC appointed at the time when Lech Kaczyński was the president of Poland, claims that the “gradual and constant” wear off of the zloty is “a serious warning” against cutting interest rates right now. This should also remind the market about great cautiousness “if the cutting of interest rates in this year is considered”.

On the other hand, Kaźmierczak claims that a record decrease in interest rates may occur, if the results of the election are coherent with the surveys. This is another suggestion that PiS is for cutting the cost of the money.

To summarize the events of the recent days, the market should rather not be afraid of clear monetary stimulation by the NBP. On the other hand, the new MPC will probably support the scenario of a decrease in interest rates, especially with the GDP slowing down. However, perhaps the national monetary authorities will wait for a good moment (for example clear announcements about extending the QE) in order to prevent a wear off on the zloty.

In our opinion, the base case scenario before the elections is keeping the EUR/PLN below 4.30, after today's comments of Szałamacha and Kaźmierczak. However, if today's voting does not bring any definite winner, or the comments from the leading party are opposite to the ones from Szałamacha, the fear of public finance and monetary stimulation may return. In an extreme case the EUR/PLN may even reach the level of 4.40.

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

Anticipated GBP/PLN levels according to the GBP/USD rate: