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Daily analysis 26.08.2015

26 Aug 2015 13:19|Marcin Lipka

The PBOC decision has not lifted the market sentiment yet. Why some market participants don't trust the Chinese data. The zloty remains fairly stable, but if the risk aversion continues the local currency may be under more pressure

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

    14.30: Durable goods orders from the US (survey: minutes 0.4% m/m; excluding transportation +0.3% m/m

    16.00: William Dudley speech. The New York Fed chief is going to talk about the local economy. Possibly some remarks on China can be made.

After the data and Chinese decisions

Theoretically yesterday's decision about the interest rate cut and bank reserve ratio for commercial banks should be positive for capital markets. It increases the credit availability and reduces its costs. As a result, companies should invest more and consumers are expected to buy more.

Moreover, readings from the US economy could also be regarded as positive. New home sales were close to expectations and the consumer confidence index rose to the second highest level since 2007.

But the bullish mood which was visible during the European close quite quickly evaporated and at the end of the US session bears took a lead. It also reversed the sliding EUR/USD tendency. Stronger dollar was stopped by falling stocks and the euro again gained value on the carry trade reversing.

There is no doubt that emotions on the market are currently particularly strong and high volatility may not end quickly especially that fears on China are still widespread. Regarding the Asian topic William Dudley’s comments may be vital today. The subject of the speech does not cover the global economy but during the Q&A session Dudley can touch on this subject.

Discussion on China

Due to the fact that China is bringing a lot of attention it is worth looking at “The Wall Street Journal” article which reminds us why many investors are questioning Beijing statistical data. The “WSJ” quotes some WikiLeaks reports where currently the Prime Minister Li Keqiang told the US ambassador in 2007 that the GDP is “man-made”.

At that time, Li Keqiang also added that he looks at electricity consumption, transport data and loan reports. Since that moment, many economists have published their own projections on the GDP. For example, according to Capital Economics the GDP after June in China was around 4.8% y/y and the official data show growth 7.0% y/y.

On the other hand, the fears on Chinese growth are not confirmed by Nick Lardy, the Peterson Institute for International Economics expert. He claims that the discussion on Beijing data is overblown and the statistics have significantly improved since 2008.

The foreign market in a few sentences

Turmoil regarding China should still influence the mood on the markets. Investors wil also be focused on the macro data and comments from the Fed members. However, the overall mood may bring more attention than the hard data.

The zloty remains stable but there are some signs of weakness

The local currency remains fairly stable but in a scenario of further sell off on global equities the basket composed of the euro and the dollar may rise to the zloty. We confirm, however, our opinion that the Polish currency is fairly secure from the turmoil in Asia and Latin America.

The base case scenario for the EUR/PLN is still trading below 4.25, but the odds to breach that level rose, especially when we analyse how the zloty reacted to the bearish end of the US session yesterday.

Regarding the Swiss franc the CHF/PLN may be traded slightly higher but the move towards 4.00 is not currently the base case scenario.

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

Range EUR/USD 1.1350-1.1450 1.1450-1.1550 1.1250-1.1350
Range EUR/PLN 4.2100-4.2500 4.2200-4.2600 4.2000-4.2400
Range USD/PLN 3.6600-3.7000 3.6400-3.6800 3.6800-3.7200
Range CHF/PLN 3.8900-3.9300 3.8900-3.9300 3.8900-3.9300

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

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750

26 Aug 2015 13:19|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.

See also:

25 Aug 2015 17:24

Afternoon analysis 25.08.2015

25 Aug 2015 13:27

Daily analysis 25.08.2015

24 Aug 2015 17:54

Afternoon analysis 24.08.2015

24 Aug 2015 13:34

Daily analysis 24.08.2015

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