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Daily analysis 23.12.2014

23 Dec 2014 13:00|Marcin Lipka

The issue regarding significantly stronger rouble seems to be explained. Today's voting in Athens with no impact on the EUR/USD. The IMF sees stimulus from falling oil prices and Saudi Arabia would not cut production even at 20 USD per barrel. Polish currency weakened after worse-than-expected retail sales data.

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

  • 14.30 CET: Durable goods orders from the US (survey: +3.0% m/m).
  • 14.30 CET: Third US GDP reading from Q3 (survey: +4.3% q/q seasonally adjusted annualized number.
  • 16.00 CET: Personal income from the US (survey: +0.5% m/m).
  • 16.00 CET: PCE inflation from the US (survey: +1.2 y/y; minus 0.2% m/m).

Surprising rouble strength revealed

The Russian currency gained more than 30% from the last week lows and the dollar currently costs below 55 roubles. In the recent days we presented several reasons behind the rebound – from ministry of finance and CBR intervention to speculators fight ending with stabilization on the crude oil market. Each of these reasons contributed to the rouble strength, but today's Kommersant reveals the real reasons.

According to the Moscow daily newspaper, 5 companies controlled by the state (Gazprom, Rosneft) were pushed by the government to reduce their foreign exchange reserves to the level held in October 2014. In recent weeks there were some rumors that one of the reasons why the rouble slumped is a behavior of exporting companies which were reluctant to sell foreign currencies anticipating further rouble depreciation.

Kommersant writes that until March 1st state controlled firms would have to sell around 40-50 billion USD on the market. Taking into account the amount of days remaining, it may be assumed that an average of around 1 billion USD would be sold daily. With monitoring the situation by the central bank and ministry of finance it can turn out that the rouble remains fairly stable even if the crude oil resume sliding trend.

It is also worth noting that the currency appreciation does not improve the Russian economic situation. It is still poised to a deep recession if the crude oil remains around current levels. But more stable rouble may help a bit Polish exporters who can be at least sure that their revenue collected in roubles will have a stable value either in PLN or EUR.

Greek voting

Today we had a second attempt to choose the Greek president. According to the rules, the parliament in Athens votes 3 times. In two first probes the candidate has to get 200 votes and in the third 180. If none is successful, the snap election has to be called. This is what concerns market where in polls the left-wing Syriza is expected to win.

Today the pro-government candidate received 168 votes. It is slightly better than a few days ago when Stavros Dimas made 160 votes, but still short-off 180 which are required by the constitution. It is also worth noting that even if the Syriza wins, the turmoil may be much lower than two or four years ago. The radicals don't want to quit the euro zone and there are also rumors that they are eager to form a coalition with more neutral parties. However, Monday's voting will be closely observed by the market participants and if we get a positive result some rally is possible on the EUR/USD while a negative outcome should speed up the EUR/USD slide toward 1.2000.

The oil according to Saudi Arabia

Gulf countries are getting bolder in their oil game. Today's “Financial Times” cites one of the most important person in the industry – Saudi oil minister. Ali Al-Naimi said yesterday that OPEC would not cut production even if the crude slides toward 20 USD per barrel. He also claims that the world may not see the oil at 100 USD ever, Naimi suggested that when the cartel cuts output the price would rise and Russia, Brazil or US shale gas producers would gain the most and he would have lost the market share, According to Naimi Gulf countries produce oil at 4-5 USD per barrel so they can survive much longer than others.

On the other hand, on the official IMF blog, economists claims that the world GDP should be boosted by around 0.3-0.7 percentage points more in 2015 than in a scenario without oil drop. It was also pointed out that no desire from Saudi Arabia to cut production may bring the scenario observed in late 80s when the barrel dropped from 27 USD to 14 USD and we had to wait 15 years until the prices returned to the previous levels.

Foreign market in a few sentences

Today it is worth paying attention to the data. Readings from the US may give another impulse for the dollar to strengthen, especially if the GDP exceed the expectations, inflation turns to be slightly above 1.2% and income rises more than estimated. It may boost the dollar and push the EUR/PLN below 1.22 and USD/JPY above 120.

No impulses for stronger zloty

Another set of weak data is behind us. After grim industrial production reading we received today, a negative retail sales (minus 0.2% y/y; survey +2.0%). It may increase the calls for rate cut in the Q1 of 2015. On the other hand, the cheaper zloty decreases the risks for longer deflation, so further currency weakness should also be taken into the account.

Overall the worse economic condition in November may result that the December data would be much closer observed. If the slowdown persists the scenario of stronger zloty built on keeping the rates unchanged, solid GDP reading for Q3 and bullish PMI may be significantly weaken.

Today we should not expect a ground breaking news. The EUR/PLN will be probably traded between 4.27-4.29 and the CHF/PLN remains above 3.55. New record weak levels will be held to the US currency and the dollar should be worth around 3.50PLN today.

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

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000
Range CHF/PLN 3.4600-3.5000 3.4600-3.5000 3.4600-3.5000

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.6850
Range GBP/PLN 5.2500-5.2900 5.2300-5.2700 5.2700-5.3100

23 Dec 2014 13:00|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.

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