The opponents of the Brexit increase their advantage in surveys. However, the uncertainty regarding The United Kingdom's membership in the European Union may return. The announcements from the central banks will be significant in the forthcoming days. The zloty strengthens slightly, but the scale of a wear-off from the past days remains significant.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
14.30: Orders for durable goods from the USA (estimations: positive 1.9% m/m; excluding transportation: positive 0.5% m/m).
15.00: Prices of houses according the Case-Shiller index (estimations: positive 5.5% y/y).
16.00: Consumers trust index from the Conference Board from the USA (estimations: 95.8 points).
A smaller risk of the Brexit
Since mid-April we have observed a significant strengthening of the British currency. The pound index (what measures the condition of the GBP against the basket of currencies from the countries that trade with the United Kingdom) increased by approximately 4%. The limitation of the Brexit risk was the main reason for the appreciation of the pound.
If we look at the recent surveys from the British Isles, we can observe a certain change in the attitude of those surveyed. None of the thirteen surveys published this month show an advantage for the Brexit supporters. In March we had three studies, of which the results showed that the majority is for leaving the European Union.
Moreover, if we look at the average result of six recent surveys (the results were published by whatukthinks.org), we will see an 8% advantage for the Brexit opponents. This is the highest advantage in two months.
On the other hand, it is worth noting that there was an interesting situation regarding surveys. Three out of four recently conducted surveys were made by phone (the other was made online). Usually these proportions are opposite. For months, surveys regarding the Brexit made by phone, show a significant advantage of the EU supporters. This advantage was at the average level of 8% in March, and at the average level of 12% in February.
On the other hand, the amount of Brexit opponents in online surveys is very small. The average from five recent surveys is less than 1.5%. As the result, the actual difference (in comparison with March) can be even smaller than the general average indicates.
Another fact that is also worth noting is that recent surveys do not fully consider the campaign of the British Treasury regarding the possible losses for the households resulting from the Brexit. They also do not consider a strong support for the Brexit opponents from Barack Obama.
In general, the risk of the Brexit has increased. However, it probably did not decrease to such degree, to which it is presented in the headlines of press agencies, which publish the average results of the recent surveys. Moreover, it is worth observing how those surveyed will react on the recent actions (the Treasury campaign and statements from Obama). If the results of online surveys go towards the results of phone surveys, we will be able to estimate whether the supporters of status quo will keep their advantage until the referendum.
On the other hand, if hesitation remains, or if there are new surveys which indicate advantage of the Brexit supporters, the situation on the pound can change rapidly. The market could come to a conclusion that the campaign is not effective, and that the final result is not as predictable as it was few weeks ago. In this scenario, the pound would give away the majority of the profits it gained since mid-April.
Macro data are also important
Yesterday, we took note of this week's meetings of the central banks. However, the signals coming from macro publications should also be taken under consideration. The data regarding the American GDP will be published one day after the Fed's meeting. Bloomberg's expectations show an increase at the level of 0.6% q/q in the annualized interpretation. The pressure on the dollar can be clear in case of a negative surprise (a reading near zero).
The quarterly publication regarding employment costs from the United States on Friday, will also be a significant element. The reading from the second quarter of 2015, which was worse than expected, caused a strong weakening of the USD. This was because the market was afraid that an already weak trend of increase in salaries may slow down even more. This would be a negative signal for the FOMC regarding the monetary tightening.
Today's publications from the USA are also worth mentioning. Orders for durable goods from February were very weak. Economists expect a strong rebound of this index. If it does not occur, we will probably be dealing with a clear wear-off of the USD against the EUR before the Fed meeting.
A slight correction
A slight work-off of the recent weakening of the zloty has been observed since the beginning of today's session. The EUR/PLN is going down to the area of 4.40, and the USD/PLN and CHF/PLN are approaching the level of 3.90 and 4.00, respectively. However, the scale of overvalue of the Polish national currency from the past few days is very clear. This is probably mainly a result of bigger changes in the foreign capital wallets, rather than of the discussion regarding a downgrade of Poland's rating by Moody's (we wrote about this in the Daily Analysis on Friday and Monday).
A certain danger may also come from Poland's general financial situation. In March, the budget deficit was bigger than expected. According to yesterday's data from the Ministry of Finance, the deficit was 9.59 billion PLN (17.5% of the annual plan). According to expectations, the deficit was to be at the level of 9.32 billion PLN (17% of the annual plan). Even though the difference is not big, it is worth noting that the annual plan is the only acceptable limit. If the risk of exceeding it remains, it will be necessary to modify the budget. This would be another fundamentally negative element for the PLN.
Getting back to the forthcoming days, it is worth remembering that the zloty “took off” from the global sentiment, and goes by its own rhythm. This may increase the risk that the changes on the PLN may be sudden and unpredictable. This is because the market participants lack a stable reference point. This situation may also attract a speculative capital, which may continue to disturb the situation on the Polish national currency, by using relatively minor means.
However, the situation should become stable within the next few weeks. The current global sentiments indicate a small probability for the EUR/PLN to remain above 4.40 in the second half of 2016. This scenario will be even if Moody's downgrades Poland's rating, and anxieties regarding the budget remain. In the forthcoming months, the PLN can be endangered only by a clearer and wider escape of the capital from the emerging markets.
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.
The opponents of the Brexit increase their advantage in surveys. However, the uncertainty regarding The United Kingdom's membership in the European Union may return. The announcements from the central banks will be significant in the forthcoming days. The zloty strengthens slightly, but the scale of a wear-off from the past days remains significant.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
A smaller risk of the Brexit
Since mid-April we have observed a significant strengthening of the British currency. The pound index (what measures the condition of the GBP against the basket of currencies from the countries that trade with the United Kingdom) increased by approximately 4%. The limitation of the Brexit risk was the main reason for the appreciation of the pound.
If we look at the recent surveys from the British Isles, we can observe a certain change in the attitude of those surveyed. None of the thirteen surveys published this month show an advantage for the Brexit supporters. In March we had three studies, of which the results showed that the majority is for leaving the European Union.
Moreover, if we look at the average result of six recent surveys (the results were published by whatukthinks.org), we will see an 8% advantage for the Brexit opponents. This is the highest advantage in two months.
On the other hand, it is worth noting that there was an interesting situation regarding surveys. Three out of four recently conducted surveys were made by phone (the other was made online). Usually these proportions are opposite. For months, surveys regarding the Brexit made by phone, show a significant advantage of the EU supporters. This advantage was at the average level of 8% in March, and at the average level of 12% in February.
On the other hand, the amount of Brexit opponents in online surveys is very small. The average from five recent surveys is less than 1.5%. As the result, the actual difference (in comparison with March) can be even smaller than the general average indicates.
Another fact that is also worth noting is that recent surveys do not fully consider the campaign of the British Treasury regarding the possible losses for the households resulting from the Brexit. They also do not consider a strong support for the Brexit opponents from Barack Obama.
In general, the risk of the Brexit has increased. However, it probably did not decrease to such degree, to which it is presented in the headlines of press agencies, which publish the average results of the recent surveys. Moreover, it is worth observing how those surveyed will react on the recent actions (the Treasury campaign and statements from Obama). If the results of online surveys go towards the results of phone surveys, we will be able to estimate whether the supporters of status quo will keep their advantage until the referendum.
On the other hand, if hesitation remains, or if there are new surveys which indicate advantage of the Brexit supporters, the situation on the pound can change rapidly. The market could come to a conclusion that the campaign is not effective, and that the final result is not as predictable as it was few weeks ago. In this scenario, the pound would give away the majority of the profits it gained since mid-April.
Macro data are also important
Yesterday, we took note of this week's meetings of the central banks. However, the signals coming from macro publications should also be taken under consideration. The data regarding the American GDP will be published one day after the Fed's meeting. Bloomberg's expectations show an increase at the level of 0.6% q/q in the annualized interpretation. The pressure on the dollar can be clear in case of a negative surprise (a reading near zero).
The quarterly publication regarding employment costs from the United States on Friday, will also be a significant element. The reading from the second quarter of 2015, which was worse than expected, caused a strong weakening of the USD. This was because the market was afraid that an already weak trend of increase in salaries may slow down even more. This would be a negative signal for the FOMC regarding the monetary tightening.
Today's publications from the USA are also worth mentioning. Orders for durable goods from February were very weak. Economists expect a strong rebound of this index. If it does not occur, we will probably be dealing with a clear wear-off of the USD against the EUR before the Fed meeting.
A slight correction
A slight work-off of the recent weakening of the zloty has been observed since the beginning of today's session. The EUR/PLN is going down to the area of 4.40, and the USD/PLN and CHF/PLN are approaching the level of 3.90 and 4.00, respectively. However, the scale of overvalue of the Polish national currency from the past few days is very clear. This is probably mainly a result of bigger changes in the foreign capital wallets, rather than of the discussion regarding a downgrade of Poland's rating by Moody's (we wrote about this in the Daily Analysis on Friday and Monday).
A certain danger may also come from Poland's general financial situation. In March, the budget deficit was bigger than expected. According to yesterday's data from the Ministry of Finance, the deficit was 9.59 billion PLN (17.5% of the annual plan). According to expectations, the deficit was to be at the level of 9.32 billion PLN (17% of the annual plan). Even though the difference is not big, it is worth noting that the annual plan is the only acceptable limit. If the risk of exceeding it remains, it will be necessary to modify the budget. This would be another fundamentally negative element for the PLN.
Getting back to the forthcoming days, it is worth remembering that the zloty “took off” from the global sentiment, and goes by its own rhythm. This may increase the risk that the changes on the PLN may be sudden and unpredictable. This is because the market participants lack a stable reference point. This situation may also attract a speculative capital, which may continue to disturb the situation on the Polish national currency, by using relatively minor means.
However, the situation should become stable within the next few weeks. The current global sentiments indicate a small probability for the EUR/PLN to remain above 4.40 in the second half of 2016. This scenario will be even if Moody's downgrades Poland's rating, and anxieties regarding the budget remain. In the forthcoming months, the PLN can be endangered only by a clearer and wider escape of the capital from the emerging markets.
See also:
Afternoon analysis 25.04.2016
Daily analysis 25.04.2016
Afternoon analysis 22.04.2016
Daily analysis 22.04.2016
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