Retreat from equity market (Daily analysis 09.02.2018)

After huge decreases on American and Asian floors, the situation on the European stock exchange has been mildly stabilizing. The Swiss franc is stronger, but there is no visible capital outflow from emerging markets. The EUR/PLN has tested the 4.20 level. These are the highest levels of this year. Nervousness on the market may persist.

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

• The lack of macro data may noticeably affect the analyzed currency pairs.

Thursday's session was another difficult test for investors this week. The Dow Jones index, just as it did on Monday, lost over 1000 points (4.15%) and fell 10% below historic peaks. Strong decreases were also observed in Asia (2 to 4%).

European quotations, however, were much calmer. Futures contracts on the S&P 500 gained slightly. However, they have been quite weak recently due to the cash market situation during the following session in the US.

Interesting data was published by WSJ in the morning. It was based on analyses by Bank of America, Merrill Lynch, and EPFR. It shows that investors withdrew more than 30 billion dollars from the global stock market during the week that ended last Wednesday. This was the strongest capital outflow since 2004.

Another curiosity is the fact that 33 billion USD has fled from the stock market in North America. It means that the capital retreat did not have a strictly global character. For example, the Japanese market has netted 4.7 billion dollars net, and the emerging markets netted less than 8 billion dollars.

Although estimates presented by the WSJ do not include the debt market, they show that despite a massive capital outflow from US shares, there is no panic withdrawal of funds from the economies of developing countries. Due to this, the currencies of these countries do not head down as clearly as if the result was from general sentiment in the markets.

This situation may change, of course. Persistent pressure on the US stock markets is also likely to affect the reduction of household consumption growth (through a negative asset effect) or aversion to investments among enterprises. If this is the case, it would then be very difficult to maintain relatively calm moods on developing countries currencies and their depreciation could be sharp.

The EUR/PLN tested 4.20

We have been paying attention to zloty risks for many days. Some have materialized, but the scale of changes is not dramatic at the moment. Today, the EUR/PLN is testing the 4.20 level (the highest level this year), and the Swiss franc is climbing to 3.65, but the zloty is not having a panic sale. This may be the result of the relatively calm behaviour of foreign capital which, as data showed (detailed above), does not flow away from the developing stock markets.

If, however, weak sentiment is still on the markets, we may expect an acceleration of zloty depreciation along with the actual capital outflow of emerging countries. This could cause strong increases in foreign exchange rates and a 10 point raise on the Swiss franc or the dollar to not be surprising.