Daily analysis 28.09.2015

The week is full of statements from Federal Reserve officials but does not have to be that volatile as in the last few days. The zloty should remain fairly stable unless capital markets generate more pressure on the PLN. Comments from the MPC member Andrzej Rzońca.

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

• 14.30: Live interview with William Dudley, New York Fed chief, organized by the “The Wall Street Journal”.
• 14.30: PCE inflation from the US (survey: 0.0% m/m and 0.3% y/y; excluding gasoline and food +0.1% m/m and +1.3% y/y.
• 19.30: Charles Evans, the Fed's president from Chicago is scheduled to talk about monetary policy.
• 23.30: John Williams’, the Fed president from San Francisco, speech.

Week full of events but the impact may be limited

There are 7 Fed officials scheduled to speak this week on monetary policy in the US. It is, however, possible that FOMC comments may bring much less volatility than in the last few days. It is a result that after Thursday's Janet Yellen comments the wide Fed consensus on one interest rate hike was confirmed also by the Federal Reserve chairwoman.

It does not mean that we should dismiss all the speeches. The most important issue today should be the interview run with William Dudley hosted by “The Wall Street Journal”. The New York Fed chief fairly quickly reacted to the renminbi devaluation and called the event as having significant effects.

On the other hand, some sensitivity on global issues does not have to produce a more dovish view during the “WSJ” interview in the afternoon. Dudley is rather close to the Fed's consensus and even if he sounds slightly more dovish than the consensus he should confirm the majority view to hike rates in 2015.

Charles Evans would like to begin monetary tightening in 2016. The Chicago Fed chief, however, is well known for his dovishness and even before the Chinese turmoil, suggested that interest rate hikes were not on his agenda. No major news is expected from John Williams. He has already spoken after the most recent Fed meeting and confirmed his view on the hike in 2015.

Taking into account the firm consensus from the Fed, today's comments may be much less important than many expect. A similar situation should be observed in the following days when Yellen, Brainard, Rosengren, Kocherlakota, Mester, Fischer and Bullard will testify.

Today besides the Fed speeches there is also the PCE inflation publication. The market should focus on price changes excluding gasoline and food. There is a high probability that the reading may be lower by 0.1 percentage points than the consensus expects. It is a result mainly of the most recent CPI reading which was slightly lower. But a more significant reaction can produce a negative reading on the monthly basis and a fall to 1.1% on the yearly data. Then the dollar should trim around 30-50 pips to the euro.

The foreign market in a few sentences

A strong will to hike interest rates in 2015 both by the Fed consensus and the chairwoman may be questioned only after more significant turmoil occurs in the global or US economy. As a result, there is a slim chance that the Fed meetings or inflation data can markedly disturb the trading on the most heavily traded pair.

Stable but with a threat of depreciation

The PLN session started fairly calmly, but around midday the slide on developed capital markets pushed the zloty lower. The base case scenario for the zloty is stabilization, but if the US equity confirm the weak European sentiment the EUR/PLN may even finish the day around 4.24.

In the morning the PAP news agency published an interview with MPC member Andrzej Rzońca. He stressed some global threats for the Polish economy (Brazil, China, Russia, Turkey) but was also critical about the promises made by political parties during the recent parliamentary election. Rzońca claims that if implemented they would decrease economy resistance to external turmoil and dramatically increase public finance deficits.

Deputy Prime Minister Janusz Piechociński was less optimistic than usual about the Polish economy. The economy minister noted some negative feedback from EM countries and suggested that a 3.8% growth in 2016 may be harder to achieve.

In a few days perspective it is worth observing the Polish PMI reading. If the manufacturing index fails to return to around 52 points or above it may further weight on the local economy. Moreover, if the weak data combines with “risk off” sentiment the EUR/PLN may even be pushed above the 4.25 mark.

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

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