Markets await stronger impulses (Daily analysis 19.11.2019)

There is a growing probability that British Conservatives will form an independent government. The zloty remains stable after the expose of the Polish Prime Minister Mateusz Morawiecki. The euro is about 0.01 PLN below the 4.30 PLN boundary.

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.

Waiting for an agreement

Last few hours have brought no key macroeconomic publications. It also seems that for investors, Monday's meeting of President Donald Trump with the President of the Federal Reserve, Jerome Powell, remains more of a political than an economic event. Both sides kept their positions, as evidenced by both Trump's tweets and the official Fed's statement. The US President continues to suggest that most of the US economy's problems are caused by too strong dollar and high interest rates. In the official FOMC report, one can read that according to Powell, the monetary policy (interest rates) will be utterly dependent on the information appearing, which will affect economic expectations.

Recently, attention has also been drawn by Chile and Hong Kong. After a month of protest in a South American country, there is a chance of a breakthrough. The political forces have agreed on a course towards when and how the constitution can be amended to reduce social inequalities and ensure better access to education and health services. Will this be enough to prevent further protests? Now it is not the time for such statements, but the market believes that this is a step in the right direction, as shown by the Chilean peso's quotations. The USD/CLP dropped to around 780, which means a 3% appreciation of the peso against the US currency compared to the recent historical lows marked by the Chilean currency.

In the case of the events in Hong Kong, there is still no sign of a rapid settlement of the conflict. Schools are not due to open until Wednesday, and relations between the protesters and the authorities remain extremely tense.

In the context of the former British colony, it is also worth following the actions of the USA. The US Senate may adopt the law on democracy and human rights in Hong Kong today (the House of Representatives has already adopted it).

In the ''How Is Congress Trying to Support the Hong Kong Protesters?" study by the think-tank Council on Foreign Relations, the law may introduce visa restrictions for those responsible for events in Hong Kong, and it requires the State Department to annually assess whether Hong Kong continues to maintain a "high level of autonomy" from Beijing. This law is important for the former British colony because the US treats it differently from the mainland part of China and enjoys many privileges in terms of international trade.

Secondly, the White House's position in the context of the Congress law on Hong Kong remains unclear. It may be used in trade negotiations. As a result, it is difficult to say whether the President will sign the law and whether it will help to achieve an agreement with China or whether it will become another factor in the dispute. In general, however, the baseline scenario remains the settlement of a truce between the powers and the conclusion of the first phase of the trade deal.

The Conservatives' position is getting stronger every day

Polls published on the Isles show that Boris Johnson's party is increasingly likely to win early elections on December 12th. According to the UK poll tracker prepared by the Financial Times, Conservatives already have support at the level of 41%, and Labourists 29%. The average for Tories from the last 5 studies is almost 44%.

Such high polling figures of Conservatives, even given the difficulty of predicting the outcome of elections in the UK (due to single-mandate constituencies), should give Johnson an independent majority in the House of Commons. But is that good news for the pound?

Actually, yes. Mainly due to the fact that in the case of the Tory government, the EU exit agreement will no longer be threatened and the risk of hard Brexit will drop to zero. Negotiations on a new agreement with the EU will start in the coming months, which may be a risk factor, but it is too far ahead for the market to care. The weak overall support for the labourists is also rather positive for the sterling, as Jeremy Corbyn's team is extremely economically left-wing, which is usually perceived negatively by the entrepreneurs.

Zloty's calm quotations

Prime Minister Mateusz Morawiecki's expose was rather neutral for the zloty. Efforts to maintain the GDP growth at a level exceeding by 2-3 percentage points the average annual eurozone result do not seem particularly ambitious (worrying), given that after the crisis (2010-2018) such a result was achieved (2.15 percentage points). Therefore, the market should not fear that there will be a particularly strong fiscal stimulus to achieve the promised result. Also, an analysis of potential GDP growth for both currency areas suggests that this outcome is real without any particular increase in risks. In the shorter term, the zloty will continue to depend on the mixture of global sentiment and the appetite for the dollar. For now, this mix should rather keep the EUR/PLN exchange rate slightly below the 4.30 PLN limit.