Daily analysis 24.11.2016

New records of the American currency. Details regarding the Fed’s meeting in November were neutral for the market. New data from Germany is positive. The dollar is at its fourteen-year peaks against the zloty. However, the general reaction on the Polish currency was relatively calm.

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

• 14.00: The minutes from the MPC meeting in November.

Dollar’s new records

The American macro data from yesterday was better than expected. However, it’s a matter to discuss, whether it was sufficiently positive to cause a 1% strengthening of the dollar against the euro. Nevertheless, the market’s behavior on Wednesday confirmed a positive attitude towards the USD.

The dollar index (DXY) exceeded the level of 102 points this morning. This means that it’s 6% above the minimum, which was reached shortly after the presidential elections in the USA. Moreover, new thirteen-year peaks on the DXY have been established.

It’s also worth taking note of the USD/JPY behavior, which currently is at the level of 113. This is by 8% higher than at the beginning of this month and by approximately 12% higher in comparison to its minimum from November 9th. This move is partially caused by the dollar’s strength. However, the yen’s weakness is also responsible for this situation. Worse condition of the Japanese currency is a result of actions from the central bank, which prevent profitability of treasury bonds to grow. Therefore, the adjustment to varying market conditions is made through the currency channel.

Getting back to the American market, expectations regarding rate hikes are constantly increasing. Profitability of two-year bonds, as well as of ten-year bonds, have recently tested the level of 1.15% and 2.4%, respectively. On the other hand, the overnight indexed swap (OIS) shows more than 40% of likelihood that in March 2017, interest rates will be by 50 base case points higher than they currently are. This likelihood was below 10% after the American elections.

No reaction to minutes and positive German data

Reaction to the minutes yesterday was limited. This is mainly a result of the fact that the market currently is in a totally different place, than it was at the month’s beginning. The FOMC minutes confirm approaching rate hikes. However, they don’t contain any clues regarding next moves, which are crucial for investors.

The minutes from December will definitely be more significant regarding further actions, as well as explaining fiscal changes. Primary dealers expectations should be interesting as well. However, both of these documents will not be published sooner than in one-and-a-half month.

Today’s data from the German economy was positive. The Ifo index remained at a decent level of 110.4 points. In his commentary regarding the data, Clemens Feust, the Institute’s chairman wrote that, “companies are yet again satisfied with their current condition.” However, their forecasts for the forthcoming months are slightly less optimistic. Feust also claimed that the result of the American elections didn’t impact the German economy.

Looking at particular sectors of the German economy, industrial processing quoted a slightly worse result than it did in October. However, building sector, as well as retail sales and wholesale have increased yet again. Due to these results, as well as yesterday’s PMI, we can be optimistic towards perspectives for the German economy in the break of 2016 and 2017.

Relatively moderate reaction of zloty

Sudden strengthening of the dollar, as well as an increase in profitability of the American bonds, were negative for the emerging market currencies. The dollar exceeded the level of 4.21, which was its highest in more than fourteen years. The euro was near the level of 4.44. However, the genral reaction on the zloty wasn’t as nervous as we could expect.

Today’s behavior of the zloty has also confirmed an improving sentiment towards the PLN. The EUR/PLN went down to 4.42 and the PLN/HUF currently is 1% higher than the minimum from yesterday. This may mean that profitability of the Polish bonds, as well as the exchange rate of the zloty are becoming increasingly attractive for the global capital. This is also a sign that the probability of calmer reaction from the zloty to negative news from abroad is increasing. Moreover, the recent declines may be worked-off significantly, if Poland’s internal situation calms down.