Hong Kong protests still bring a lot of media coverage but its market impact is limited. Dovish comments from Charles Evans. NABE survey regarding future interest rate level. The zloty remains stable both to the franc and the euro. Another record high levels on USD/PLN and GBP/PLN.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 15.45 CET: Chicago PMI (survey 62 points).
- 16.00 CET: Conference Board Consumer Confidence index (survey 92.5 points).
- Tomorrow at 10.00 CET: Manufacturing PMI from Poland (survey 48.6 points).
Hongkong. Evans. NABE
The EUR/USD has been testing two-year lows before the preliminary HICP data from the euro area. It is not, however, a result from weaker than expected morning readings. The unemployment in Germany was in line with expectations and the retail sales rose 0.3% y/y (expectations were at +0.1% y/y; previous month readings were revised upward from 0.7% y/y to 1.0% y/y). It seems that market participants are not really eager to wait until the Thursday/Friday key figures and try to exploit the euro weakness.
Hong Kong still experiences heavy student demonstrations. But as we wrote yesterday, there is a really slim chance that they might turn into the Tiananmen like tragedy. It is also hard to imagine that the protest could spread into the continental China. But it is worth noting that there are two scenarios which might be regarded as a escalation of the situation.
Tomorrow there is the 65th anniversary of establishing the People's Republic of China. The government is committed to run the celebration pretty smoothly. On the other hand, the protesters would like to use the “Beijing holiday” as an opportunity to push their rights further. Hypothetically if the local police was not able to deal with the issue, the heavier armed mainland forces would be deployed toward demonstrators. If such scenario materializes (low probability), we should expect further dollar strength toward most other currencies, but the HKG should remain stable due to the fact it is pegged to the US dollar. On the contrary, if the incoming hours turns out to be quite calm, we should expect the protest to fade especially that it is not really crucial to preserve Hong Kong rights or wealth.
Yesterday we could have heard on CNBC or read in the “Journal” how the dovish Fed's camp is going to unify its common view on the future monetary policy. Charles Evans, Federal Reserve chief from Chicago (next year is schedule to have the voting rights) said that “I am very uncomfortable with calls to raise our policy rate sooner than later”. Evans also claimed (similarly to the NY Fed's chief Dudley) that it is better to overshoot the inflation target (give the economy more momentum – authors' note) that risking to leave inflation below the target level. The “WSJ” also suggested that Chicago Fed's President “wouldn't be comfortable with a move to start raising interest rates before the fist quarter of 2016” (6-9 month later than the consensus assumes – author's note).
Continuing the “consensus topic” it is worth quoting the NABE (National Association for Business Economics) survey which asked 46 economists on future interest rate level in the US (one of few indicators which give some scope regarding the further monetary policy; markets also watch prime dealers and interest rate derivatives). Another time it was confirmed that private economists predict lower cost of credit than the Fed's officials. According to the “WSJ” the NABE research shows that at the end of 2015 the interest rate level should hover around 0.85% while the recent Federal Reserve economic projections were showing the benchmark between 1.25% and 1.50%. Additionally, 42 respondents claim that the first hike will be after Q2 of 2015, and only 15% sees the tightening before that period (Q2 was picked by 43%).
Summarizing, despite that yesterday's news from the US were giving some reasons to be cautious regarding short-term dollar appreciation, the upside momentum is so strong that it didn't allow generating any corrections. As a result, the approach expressed in the “weekly summary” about the EUR/USD testing 1.25 in the following days was confirmed.
The EUR/PLN and CHF/PLN pairs still remain in a narrow range trade – 4.17-4.18 and 3.45-3.46 respectively. Currently there are no reasons to expect any change regarding that matter. There is however, an alternative scenario which my push both pairs a bit further from the current levels.
A stronger move might be initiated by tomorrows PMI reading, but only if we observe a strong deviation from the projected level (48.6). As soon as the HSBC/Markit manufacturing index drops below 46, we should move over 4.18 on the EUR/PLN while it comes back above 50 mark we can expect the euro-zloty to drop below 4.17. No major trend shifts are predicted on the USD/PLN and GBP/PLN. Both pairs should continue its upwards movements and any correction will be rather short-lived. The medium-term target for GBP/PLN is around 5.50 while USD/PLN may even approach 3.50 (but not this year).
Summarizing, the following hours should not bring any major changes on both EUR/PLN and CHF/PLN. The moves on the pound and the dollar will be fully dependent on further condition of EUR/GBP and EUR/USD (in the longer run the trend continuation is much more probable than the reversal). We should also not expect any changes regarding Wednesday's Mrs Kopacz expose, which, as Polish Press Agency reports, will focus somewhat on Poland's euro zone accession.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate: