Daily analysis 26.05.2014:
All-time highs on US equities and better data from new home sales. Ukraine election positive for the markets. Capital inflow to emerging economies. Portugal's two-day conference. The zloty holding to its last week gains. Retail sales close to the market consensus.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- Already published data on retail sales from Poland (survey Polish Press Agency: +8.4%, actual reading +8.4%.
- Both in the US and in the UK markets are closed today.
Good mood. Election. Capital inflow. ECB
We ended last week in a pretty bullish sentiment on global equities. The US market closed at all-time-high and rose above 1900 points. The upbeat sentiment was supported by solid new-housing data from across the pond. The sales rose more than 6% and significantly exceeded the economists' projections (433k vs survey at 420k, seasonally adjusted, annualized). Additionally, the two previous months were revised upwards by 11k.
On Monday morning the “risk on” mood has been extended by election news from Ukraine. According to exit polls and after partially counted votes, the western-leaning candidate Petro Poroshenko is supposed to win the election in the 1st round with more than 50% support. There have been doubts if some problems to cast a vote in the east part of the country can jeopardize the legitimization of his power, but high turnout (around 60%) should reject such threat. Another key question is whether Moscow accepts the results of the election. According to the latest Putin remarks, the Russian president should not be against the Ukrainian choice. On Friday he said during the St Petersburg economic forum that Kremlin would “respect the choice of Ukrainian people". If it is confirmed, then we should expect a further deescalation of the conflict and diminishing impact of news coming from the East.
A much more benign geopolitical environment is expected by global investors who have been buying more EM assets. According to “The Wall Street Journal”, EPFR Global and Bank of America Merrill Lynch there was a 500 million capital inflow to the EM debt. Despite the fact that it is not a really significant amount of money (at the beginning of the year the outflows exceeded 1 billion USD), it is worth to cite Paul Mcnamara managing a portfolio worth 6 billion USD at London GAM fund. He claims that “the death of emerging markets was much exaggerated“. Mcnamara also said that “his found has been buying long-dated Polish zloty bonds and Mexican peso bonds”.
Today a two-day central bankers' (and other officials from financial world) meeting started in Portugal's town of Sintra. Many ECB members are scheduled to speak during the summit (Draghi, Constancio, Coeure, Praet), but according to the Bank's website the titles of their speeches are not directly connected with the future monetary policy. Only Draghi's remarks on “Monetary policy in a prolonged period of low inflation” could have been a market moving information. But according to the text published on the ECB website, the central bank chief seems to be pretty reluctant to make any impact on the market. In result the status quo has been sustained - June decision with focus on May's inflation.
Summarizing, the following hours should be pretty clam on the EUR/USD. Bank holidays both in the US and in the UK and empty macro calendar does not encourage investors to change their current stance. In the coming days the market should position itself toward June's ECB meeting and other data which may determine future monetary policy either in Europe or in the US.
Stable around 4.15
The zloty remains fairly stable in first hours of Monday's trading. Both at EUR/PLN and CHF/PLN we manged to hold the recent levels and most transactions has been proceeded around 4.15 and 3.40 respectively. It seems that much of the positive Ukrainian developments has already been discounted and now we have to wait for the Russian moves. In the medium-term the conflict in the East should diminish and also any news from this region will have lesser and lesser impact.
The Polish statistical office published retail sales data today. The reading was in line with Polish Press Agency consensus (+8.4% y/y). Close to the market survey was also the unemployment rate at 13.0%. The readings confirm abroad-based opinion that the Polish economy is expanding pretty fast and Q2 growth at around 1% q/q (seasonally adjusted) is pretty possible.
Summarizing, the zloty should be pretty calm today due to lack of US and UK investors. In the following days we may expect a further PLN appreciation with a target level for EUR/PLN and CHF/PLN at 4.13 and 3.38 respectively.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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