Daily analysis 28.11.2016

The OPEC meeting remains at the center of attention. OECD estimates the impact of fiscal actions on the American economy. The zloty is gaining value slightly. Revision of economic forecasts for Poland.

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

• No macro data that could significantly impact the analyzed currency pairs.

Global impact of OPEC

This week had started with an overvalue of the American currency. This was particularly visible in its relation against the yen. A decrease in the USD/JPY was more than 150 pbs. However, the situation became slightly more stable shortly before noon. Also, after testing the area of 1.0700, the EUR/USD returned below 1.0650. These moves on the dollar were related to a decrease in profitability of the American debt, as well as to overvalue of oil. This latter element may appear to be crucial within the forthcoming days.

Oil was significantly overvalued last Friday. The market interpreted negatively the lack of Saudi Arabia during the discussions between the OPEC countries and the countries that are not the Cartel members. Moreover, statements from the Saudi minister of energy regarding the possibility of creating a balance between supply and demand (even without a reduction of global mining), have been interpreted as a step back in reducing oil production.

However, not all news are negative for the WTI and Brent. Representatives of Venezuela and Algeria will meet the Russian minister of oil on Tuesday. Moreover, a meeting in Tehran was held last Saturday. According to Bloomberg information, which was based on a bulletin from Algeria Press Service, an offer of reducing mining by 1.1 million barrels by OPEC and by 600k barrels by countries from outside of the Cartel, was presented during this meeting. Bloomberg also informed that Iran has been presented with an offer of increasing its production up to 3.92 million barrels per day. This is only 80k less than Iran’s goal.

Taking into consideration that the OPEC meeting is scheduled for this Wednesday, chances for an agreement have decreased during the past few days. However, this does not mean that they are below 50%. It seems that the lack of consensus would take the WTI below 40 USD per barrel and leave it at this level for the long-term. On the other hand, a relatively small mining reduction (approximately one million barrels) should take prices to the range of 50-55 USD per barrel. These arguments should contribute in favor of the potential agreement.

Oil quotations may impact the dollar in the short-term. If its prices increase, investors may interpret this as an increase in inflation expectations. This is taking into special consideration very low retail prices of fuel in the USA at this year’s beginning. Moreover, this may continue to stimulate an increase in profitability of the American treasury bonds, as well as of the dollar. On the other hand, there is a large chance that the dollar will clearly lose value in the case of the lack of consensus.

OECD on fiscal stimulation in USA

Today, OECD presented a scenario of potential behavior of macroeconomic indexes, in the case of activating fiscal stimulation in the USA. Of course, we need to be careful when interpreting these forecasts. This is because there only were announcements from the new US administration and no specific decisions have been made yet.

The OECD model assumes that the GDP could grow up to 3.0% in 2018, in comparison to the base case scenario of 2.1%. OECD wrote that, “a higher growth against the potential combined with a higher inflation would cause a more restrictive monetary policy, which would increase by 0.25% in 2017 and by 0.75% in 2018, in comparison to a very low base case scenario.”

New forecasts for Poland

The zloty strengthened at the beginning of the day, just as the other emerging market currencies. However, a significant portion of this move was reduced at approximately 12.00 AM. On one hand, this was a result of slight growths in the oil market and on the other, of the OECD data regarding hypothetical results of fiscal stimulation in the USA.

In its latest report, OECD revised its economic forecasts for Poland. The current predictions of the Polish GDP growth are at the level of 2.6% in 2016 and at the level of 3.2% in 2017. This is by 0.4% and 0.3%, respectively, less than in June. However, we need to notice that 0.9% has been added for this year due to change in supplies. If we exclude this arithmetical component, private and public consumption, combined with investments and net export, would be responsible for a growth below 2% for 2016.