Election in Great Britan and unexpected punch in the zloty (Daily analysis 28.11.2019)

The latest YouGov estimates point to a marked victory of the Conservatives in the December elections to the British House of Commons. President Donald Trump signs Hong Kong legislation. New information regarding loans in francs weakens the zloty. The euro is quoted above 4.32 PLN during the afternoon trading.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Conservatives on their way to victory

For few days on, it is known that the in-depth research by YouGov shows that there is a growing chance that Boris Johnson and his team will win the election to the House of Commons on December 12th. The market, of course, also recognized these estimates, although at some point it began to question them after several national studies emerged that called into question the clear victory of the Tories. However, the studies published yesterday evening again show that the Conservatives are on the right path to success.

YouGov, which did the latest research, doesn't even insist on naming it a poll. This is an in-depth survey conducted in all constituencies. In total, as YouGov writes, more than 100 thousand questionnaires were administered, which clarified the voters' behaviour for December 12th.

According to these surveys, the Conservatives will get around 359 places, i.e. 47 more than they currently have. With a 95% probability, the number of seats for the Tories will be between 328 and 385, which means that either they will be able to rule due to a slight advantage, or the victory of Johnson's party will be truly spectacular. What is also important is that the majority of the seats in the House of Commons will be gained by the loss of the Labourists. As a result, the mandate to govern can be robust.

YouGov boasts that the 2017 pre-election survey was very accurate, as it predicted the distribution of seats in as many as 93 percent of the electoral districts (there are 650 in total, and there are so many seats in the House of Commons). The elections that took place more than two years ago were exceptional because this survey well-identified a turn among the voters (at that time, towards the Labourists). In its telegram, Bloomberg stressed that the YouGov survey predicted the result of the 2017 elections more accurately than standard questionnaires.

The pound somewhat strengthened after the survey was published (by about 0.2% to the euro), but in the morning it depreciated and gave away the increases. This moderate reaction may result from the fact that investors are sceptical about the political results of the surveys (e.g. Brexit was underestimated regardless of the method). Some of the information is already included in the pound exchange rate. The British currency is close to reaching its highest levels to the euro for more than two years. Overall, however, in the current situation, the Tories victory and the fact that the risk of hard Brexit is avoided should continue to help the pound, also in relation to the zloty.

Donald Trump signs the bills

Even before Thanksgiving began, President Trump signed two controversial laws on Hong Kong. The first, as the CNBC reminds us, obliges the State Department to annually assess whether Hong Kong is a sufficient autonomous area to qualify for special trading conditions with the US. The second law, on the other hand, prohibits the sale of rubber bullets and tear gas to Hong Kong police.

The changes in the law signed by Donald Trump are, of course, not appreciated by Beijing. "These two bills are an obvious intervention of Hong Kong’s internal affairs, they are unnecessary, and without grounds, they will also harm the relationship and interests between Hong Kong and the U.S.," CNBC quotes the official position of the government.

It is extremely difficult to predict what impact these laws will have on the first phase of the US-China trade agreement. It seems that they are unlikely to stop the announcement of an agreement, which, however, may be less comprehensive, and the transition to the next phases may be more difficult or take more time.

Zloty depreciates significantly

Yesterday, we highlighted that the rather weak condition of the zloty may result from the tense situation of many South American currencies and the relatively strong dollar. Today, however, quite unexpectedly, the zloty received a punch from the Supreme Court ruling on issues related to loans in the franc.

Kamil Zatonski from "Puls Biznesu" wrote that after the publication of the Supreme Court's verdict "the possibility of Conversion of the Swiss franc mortgage to the PLN with the LIBOR CHF interest rate returns to wallpaper". He also pointed out that the decision concerns a loan denominated, although the subject of the judgment of the CJEU was an indexed loan. Lukasz Janczak, the analyst at Ipopema Securities, quoted by PB and Bloomberg, said that "the Supreme Court's ruling shows that banks may be exposed to the worst-case scenario in disputes with the Swiss franc loan payers.

As a result, the EUR/PLN exchange rate increased by over 0.01 PLN compared to yesterday's closing and is above 4.32 PLN. The PLN's behaviour in relation to the forint also indicates that weaker quotations of the Polish currency are primarily a result of domestic events, in this case related to loans in the franc. Adding to this the persisting global tension (new historical lows of South American currencies and the strength of the dollar), it is difficult to expect the zloty to make up for its losses quickly.