Daily analysis 27.04.2017

Both the currency and the American bond markets have been skeptical about the tax system changes from the White House. No fundamental changes in the eurozone’s monetary policy are expected from the ECB meeting. The zloty remains stable and relatively resistant to external events.

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

• 13.45: Decision regarding interest rates in the eurozone (estimates: no changes; deposit rates: negative 0.4%).
• 14.00: German consumer inflation for April (estimates: 1.9% YOY).
• 14.30: The ECB press conference.
• 14.30: Orders for durable goods in the USA (estimates: positive 1.3% MoM; excluding transport: positive 0.4% MoM).
• 14.30: Weekly jobless claims from the USA (estimates: 245k).

Offer of tax changes hasn’t supported dollar

Both the dollar’s and the US treasury bonds’ quotations have been suggesting that investors were not enthusiastic towards changes in the tax system proposed by the White House. Even though the previous announcements regarding lowering taxes for both companies and households, but we still don’t know potential impact of this action on the budget.

The daily briefing in the White House with the Director of the National Economic Council, Gary Cohn and the US Secretary of the Treasury, Steven Mnuchin, also didn’t dispel these doubts. Asked about the moment of presenting the complete plan, Mnuchin said that, “We are moving as quickly as we can. So we are working with the House and Senate on all the details.” Moreover, Gary Cohn, asked about the new rates for personal income, said that, “Again, we are in constant dialogue with the House and the Senate.”

Speaker of the US House of Representatives, Paul Ryan, also referred to the White House’s proposal. According to Bloomberg, he suggested that the Republicans treat President Donald Trump’s plan as a signpost. As a result, the lack of details caused both the dollar’s value, as well as the profitability of the US bonds to decrease. Therefore, the dollar will not be supported by the fiscal changes, until financing for the tax plan is guaranteed or the Republicans agree to increase the deficit significantly.

Mario Draghi’s conference

The ECB chairman’s press conference will start today at 14.30. At the same time, the ECB will publish its announcement. A potential modification of the previous announcement’s fragment regarding interest rates, which stated that, “We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases,” is what investors will focus on the most. If this fragment is unchanged, this will prove that the ECB remains extremely dovish, despite improving inflation and a potential political stabilization within the region.

The market will also focus on the risk balance. The ECB announcement from March began emphasized that, “The risks surrounding the euro area growth outlook have become less pronounced, but remain tilted to the downside and relate predominantly to global factors.” If they stop tilting downside, this would improve the evaluation of the external situation.

Taking into the consideration the most recent statements from the leading ECB representatives (Draghi, Praet), as well as a moderate pressure on baseline inflation, it seems unlikely that these crucial fragments will be modified. In addition, premature optimism towards the second round of the French presidential election may result in a surprise. As a result, the euro may lose value, but the recent dollar’s wear-off should limit depreciation pressure on the EUR/USD.

Zloty has been stable

Over the past few hours, the zloty has been exceptionally stable. The EUR/PLN has been within the range of 4.22-4.23. Moreover, the zloty hasn’t been reacting to external events. Due to speculations regarding the USA leaving the NAFTA (which were later denied by the White House), overvalued the Mexican peso by approximately 2%. The zloty has also been stable against the forint and the PLN/HUF remains near the 74 level.

All this may suggest that since the first round of the French presidential election, investors have been considering Poland as one of the safest emerging markets. Until this doesn’t change, the zloty will most likely maintain the majority of its recent growths. Moreover, its reaction to external dangers (those that are not directly related to the eurozone) should be fairly calm.