Strong fluctuations in rates (Daily analysis 09.05.2018)

A stressful situation in the markets - strong fluctuations in oil prices and currencies in recent hours. The conditions for most of the emerging countries' currencies are worsening. Strong fluctuation of the zloty's value. Around midday, the euro costs 4.27 PLN.

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.

Chaotic moves

The market behaves extremely nervous in the last few hours. Initially, investors could not fully decide whether President Trump's decision was negative or positive for the oil market, although the White House chose a more conflicting solution than expected.

When it turned out that oil prices rose and the Brent type exceeded 77 USD per barrel in the morning, a strong sale of emerging currencies and dollar strengthening at the European session took place. Also, the Turkish lira strongly depreciated, and this year it weakened in relation to the dollar by about 15%. As a matter of urgency, according to Bloomberg, President Erdogan convened a meeting with Turkish officials (including from the Central Bank) to discuss the currency situation this afternoon.

Apart from crude oil, many currencies were negatively affected by the fact that the yields of 10-year US Treasury bonds returned above the 3.00%. However, when it looked that it would be a weak day for emerging markets, some investors used their low valuation to increase their EM portfolio. To some extent, the Turkish authorities' decision could also cause this movement. Is the biggest disturbance really behind us?

A lot of threats on the horizon

Despite the improvement of sentiment in recent hours, there are still many threats to the emerging countries' economies. The higher oil prices (expressed in PLN, are almost half as high as a year ago) will reduce the economic potential of countries that are net importers of energy resources. There will be fewer funds for investments or consumption. This is a negative signal for the GDP growth of many countries (including Poland).

Uncertainty regarding the situation in the Middle East is also not positive for global sentiment. Also, there are symptoms of panic here and there, e.g. in Argentina interest rates reached 40% and the country applies for 30 billion USD support from the International Monetary Fund (IMF). Therefore, capital is withdrawing quite quickly from the countries with the highest risk.

Moreover, the dollar is appreciating globally. US interest rates are becoming increasingly attractive and economic growth may be faster than in other developed countries. This encourages the US capital invested outside America to return to the US.

Visible changes also in the zloty

In the morning, the dollar cost 3.63 PLN. This is the highest value in six months. The euro tested 4.30 PLN. The improvement in the zloty's situation was linked with the announcement of the Turkish authorities about the meeting of President Erdogan's economic team. Usually, such decisions improve sentiment only for a short period of time. The foundations for most EM currencies have deteriorated in recent weeks (see details in the previous paragraphs), which also puts additional pressure on the zloty.

It is highly possible that the recent highs reached by the EUR/PLN and the USD/PLN may be exceeded especially if external events stimulate capital outflows from EM countries (details in the previous paragraphs). In addition, we can expect further sessions with rapid changes in sentiment, i.e. a repetition of what we observe in the last hours.