Stress tests mostly positive for the European banks with no impact on the EUR/USD. German Ifo significantly below expectations. The situation in the East. Swiss “gold” voting fears overstated. Comments from the Polish MPC members lowering the odds for deeper interest rate cuts.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No major economic data which may significantly impact the analyzed paris.
Stress Tests. Ifo. The East. Swiss franc
Highly anticipated European stress tests didn't spur any significant actions on currencies. The ECB results were close to the market consensus and no major euro area bank failed the probe. As a result investors returned to current data, which is actually rather grim.
The Business Climate Survey on 7k German responders showed again that according to companies' officials the local economy is going to worsen. The Ifo reading dropped to 103.2 points (earlier 104.7; survey 104.5) and its subindex showing the expectations slided to 98.3 points (in September it was 99.2).
Weak readings from the European largest economy showed that incoming months may be difficult for Berlin (we wrote that most recent PMI jump was giving some misleading view). As a result it should also push the ECB to more actions which is euro negative signal.
The positive data came from the East. Ukrainian election was won by the West-oriented parties and according to the exit polls Kiev authorities should keep their EU course. Moreover, on Wednesday it is highly probable that the gas agreement will finally be signed between Ukraine government and Gazprom. At least such indications has been recently sent by both sides. For markets the issue, however, has lost most of its significance. It can even fail to boost the ruble. The Russian currency was not able to take advantage from S&P decision to keep investment rating. It means that only key issues (sanctions, crude oil prices, foreign currency payments by Russian companies), when resolved, may give the ruble a relief rally.
In commentaries we have frequently written that homeowners indebted in Swiss francs should be more relaxed since 2nd half of 2011 when the SNB introduced a floor on EUR/CHF. Since then, the CHF/PLN was quite stable and most moves were generate due to changes on EUR/PLN.
The scenario, however, may be under threat from referendum scheduled on November 30th. Members of Swiss People's Party managed to collect 100k votes under a projects called “save our Swiss gold”. As a result, at the end of next month the population will vote on the issue whether the central bank would have to maintain at least 20% of reserves in gold (currently it is only 8%).
It hadn't been that difficult in the past when the reserves hovered around 100 billion CHF. Currently, however, after the SNB bought over 200 billion euro to keep the EUR/CHF above 1.20 the balance ballooned to almost 450 billion CHF. There is a question: whether the Bank quits its promise to keep the floor on the EUR/CHF or starts buying gold worth around 70 billion USD?
The monetary policy makers from Zurich are first of all against the “gold project” and claim that it will increase the central bank costs to fulfill its mandate when the idea is passed. The Swiss government is also against the case.
The issue gained more attention recently when the media published an opinion poll where majority (45% vs 39%) is in favor of the project. This is, however, the end of bad news for Swiss debtors.
Firstly, the survey was run on the internet, which is rather weak source for statistics. Secondly, even in a scenario in which most Swiss accept the project, it still has to be voted by most on the 26 cantons. Thirdly, the government and monetary authorities haven't even started the campaign against the idea, and as we remember regarding the Scottish voting at the end of the day the authorities can have a significant impact on the society.
Additionally, even if the “circuit breakers” fail to work, it will not mean that the franc jumps the next day. The SNB will have 5 years to deal with the issue what significantly lowers the impact on the new low and the franc/gold demand. Another stabilizing element will be the announcement of negative deposit rate. It should lessen the hypothetical capita inflow to the Swiss currency.
As a result we should be very cautions to call for stronger franc and the EUR/CHF slide below 1.20 (significant appreciation on CHF/PLN). It is still highly improbable.
Summarizing, after the weak Ifo readings today it will be difficult for market participants to generate significant upside move on the EUR/USD. Moreover if we get fairly neutral statement form the Federal Reserve on Wednesday (no major threat form world's weaker growth and lower inflation) we should expect that the most heavily traded currency pair may resume its sliding trend.
Apart from Belka's comments about the “undervalued” zloty we received some statements on monetary policy from Hausner on Friday. The neutral MPC member suggested during the Bloomberg interview that the “current level of interest rates as adequate in light of available economic forecasts”. Moreover today Elżbieta Chojna-Duch told PAP that the cut in November is possible but not certain. Taking into the account all comments we may assume that there will be a discussion whether to lower the benchmark by 25 bps or leave it unchanged. The 50 bps will not get many supporters (besides Osiatynski and Bratkowski).
Recent MPC comments supported the PLN, but today's Ifo numbers cut most of the Friday's/early Monday's gains. As a result the EUR/PLN and CHF/PLN should still remain with in the current range (4.21-4.23 and 3.49-3.51 respectively).
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate: