Daily analysis 28.10.2016

Increasing chances for an agreement regarding temporary limit of oil mining. The American GDP data is important. However, particular components of its growth will be of most significance, instead of the headline reading. The zloty remains weak against the main currencies.

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

• 14.30: The American GDP readings for the third quarter (estimations: positive 2.6% q/q in annualized interpretation).

Increasing chances for agreement

Two basic topics have been dominating in the oil market. Primarily, it’s the discussion regarding chances for limits in oil mining at the next OPEC meeting at the end of November. Secondly, it’s the data regarding the American oil supply.

This week’s beginning wasn’t favorable for supporters of growths on the WTI and Brent. Information regarding a possible Iran’s withdrawal from the agreement appeared last weekend. Moreover, the API informed that increase in the American oil supply was larger than estimated. However, the tables have turned during the second part of the week. Weekly data from the Energy Department showed a decrease in supply of oil, as well as of fuel. This was a positive information for the WTA and Brent, despite the fact that it was caused by a negative import, instead of a further production limit in the USA.

It’s worth focusing on yesterday’s information from Reuters regarding the future agreement. This information states that OPEC may decrease mining by approximately 4% of its highest level. Taking into consideration that Iran, Libya and Nigeria may be excluded for this agreement, this still means that production limit would be higher than one million barrels per day.

Press agencies informed that representatives of Brazil, Kazakhstan and Russia will be present at the technical meting of OPEC in Vienna, which is scheduled for next weekend. This is a significant information, because Brazil and Kazakhstan were planning to increase their mining in the forthcoming months. If this doesn’t happen, OPEC actions should have a larger impact on oil prices. This means that the prices may remain at their current level, or move to the mid-level of the range of 50-60 USD per barrel.

We still think that the decision regarding limits in the global production by approximately one million barrels (most likely for six months), will be made by the end of November. If such a scale is announced, this should be a positive information for oil, as well as for oil currencies (Russian ruble, Mexican peso, Canadian dollar and Norwegian krone).

American GDP

Today, we will know the American GDP for the third quarter. The market consensus (presented by Bloomberg agency), assumes that the growth will be at the level of 2.6% q/q in annualized interpretation. The GDPNow model of the Atlanta Federal Reserve is showing the value of 2.1%. If the final result is between the above values, it will be relatively neutral for the dollar.

The market should also focus on the detailed GDP data. Private consumption index should be at least able to generate 1.5-2.0%. A possible rebound of investments is crucial as well. This index was contributing to a negative economic growth for three consecutive quarters. If these indexes meet the above expectations, the dollar will most likely sustain its growth.

Positive data from the USA should also increase the likelihood of rate hikes, as well as increase profitability of treasury bonds. However, this may be negative for emerging market currencies, especially those which are significantly financed by the USD. Therefore, this could increase the pressure on Turkish lira and we would probably see new historical peaks on the USD/TRY.

Limited pressure on zloty

We can still see that changes in the European bond market are causing pressure on the zloty. Moreover, this pressure is larger than in the case of the forint. However, an increase in profitability of the euro zone’s treasury instruments should not be a catalyst of a stronger sale of the Polish currency. This is especially taking into consideration that the ECB monetary policy will remain mild for a long time. This should limit increases in profitability, as well as cause the Polish market to be relatively attractive.

Today’s main event is the American GDP reading. This may impact the zloty by the USD/PLN. If the reading is relatively high (more than 3%) and its components appear to be more balanced than they were recently (consumption plus investments), we may expect the dollar to test the 4.00 level. If the American publication is negative, there is a chance for the dollar’s decline within the range of 0.01-0.02 PLN.