Daily analysis 28.11.2014:
Best possible gift for the world's economy – OPEC will not cut the production. However, there are victims of this decision – Russian rouble and Norwegian krone. Swiss will reject “the golden initiative”, which will not convert to franc's weakening. Zloty is waiting for PMI reading on Monday.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- No macro data which may significantly affect the analyzed pairs.
A gift. Rouble and krone. Franc
Yesterday's OPEC decision is one of the greatest gifts for Europe, as well as for majority of developed and developing countries in the world. Of course cartel's Vienna resolution about maintenance of production, is not an act of good will towards representatives of Saudi Arabia or United Arabian Emirates, but a result of simple law of demand and supply and decreasing influence of countries exporting the oil on its price. However, irrespectively of reasons, the effect should be bigger than by any fiscal stimulation that was recently announced.
According to Eurostat data, the annual net import of oil equals 3.8 billion of barrels. Due to the fact that the average price of oil barrel on our continent was approximately 110 USD in recent quarters, the countries of European Union spend approximately 420 billion dollars per year on this resource.
Considering that the price of oil descended to the level of 72 USD (by approximately 35%) during few months and assuming that the current prices will maintain (the probability is quite big, when analysing the reasons of rate's breakdown), the countries of EU will pay for oil 150 billion USD less next year. The effect of savings in the euro will be however smaller by approximately 1/3, due to a 10% wear off of European currency in relation to the dollar.
However, approximately 100 billion USD of “extra means” that, at least partly, will be used for development and investments should remain in the pockets of consumers, entrepreneurs or the countries. Recent estimations of the Capital Economics informing about the growth impulse for GDP amounting 0.2-0.3 per cent on every 10 USD of price descend on a barrel of oil, may “easily” give European Union even 1% of GDP in 2015.
We should also remember, that the euro zone's monetary authorities will lead a very mild monetary policy within at least few upcoming quarters. Additionaly, Brussels also prepares a separate program of investments' revival (even if it will not succeed, its effects will be positive). When we will combine all these three impulses we can assume that 2015 will be better than recent, revised downwards estimations.
We should also not forget, that other economies, which tempo of economic growth is not satisfactory, will also take advantage on overestimation of the main energetic resource. China, India or Japan, are also amongst the leading importers of oil. The United States will also be beneficiaries of energu costs' decrease, although not in such a big degree as it was in the past, because currently almost 2/3 of demand is satisfied with the national production.
Somebody, however, has to pay for the savings mentioned above. Those who for many years have been beneficiaries of high prices – OPEC members, Russia, Norway or Canada, depending on the economic situation and gathered savings, will suffer mild or serious consequences.
When it comes to currency context (passing over such countries as Venezuela or Iran), Russia will have most to loose. Just yesterday, we wrote that if Brent will reach the level of 70 USD, it may lead to the increase of USD/RUB rate to the areas of 50. And already today, the dollar is testing this limit (at the beginning it was 33) on interbank market.
The oil effect can also be observed very clearly on the Norwegian krone. And although NOK is not as endangered as RUB, we have to remember, that Oslo exports approximately 1.5 million of barrels daily. According to last year's prices it was a value of approximately 50 billion USD per year (10% GDP; a relation very similar to the one rated by Russia – export 200 billion USD and 2 trillion of GDP). Now, these incomes will decrease by approximately 15-20 billion USD.
It can be seen very well on rates of EUR/NOK or USD/NOK. Krone is cheapest in relation to euro from 5 years, and if the Norwegian currency will be overpriced by 4%, the dollar will note its highest price for over a decade.
In the mid term, the lower evaluation of Brent should help the European currency. Fundamental demand for dollars should increase by approximately 100 billion USD, what will also cause, that the surplus on euro zone's current account in relation to GDP, will probably increase by at least half per cent (this fact should be already noted in monthly data).
On Sunday we will finally find out what do the Swiss think about the so called “golden initiative”. According to all surveys, Switzerland will reject the idea of maintaining minimum 20% of central bank's reserves in gold. However, this decision does not have to mean the appreciation of EUR/CHF pair. Considering the specifics of this market, we will have to wait for a more serious rebound until either SNB decision about introducing negative money rates or any “speculation clash” that will cause EUR/CHF to rebound clearly above the limit of 1.20. The period of consolidation close to the current levels, may last much longer, than the intuition tells us.
In conclusion, yesterday's fundamental OPEC decision, should be advantageous for the currencies of countries, who are net importers of oil, and reduce the prices of those, who on one hand are dependant from the export of oil and on the other, have some additional weaknesses (e.g. Russia and the rouble). Sunday's voting in Switzerland about the golden initiative, will probably not change the situation on franc, and during upcoming days or weeks, we will remain close to the areas of 1.20 (but with much bigger chance for a movement upwards, than successful test of the lower limits).
Before noon the GUS published the second reading of GDP for the third quarter. According to the components presented by this institution, it is difficult to fault with composition of growth. By the development of growth on the level of +3.3% y/y, the increase of investment demand amounted only 9.9% and consumer +3.3%. If on Monday one of main ahead indexes (PMI for industry) will be in the limits of 52 points (estimations 51; previously 52), we can expect further enforcement of zloty, and even a test of 4.17 downwards on EUR/PLN.
The fall of the oil prices means savings also for the Polish economy. They should amount approximately 15 billion PLN in range of a year. Prices of fuel will keep on descending. Withing the upcoming 2-3 weeks, they will fall to the areas of 4.60-4.80, and it is not excluded, that we will be able to find petrol stations, that will sell PB 95 or Diesel, for even 4.50 PLN per litre.
The discussion about franc and its appreciation towards 4 PLN, which was maintained by the media and central authorities, will come to an end after the weekend. However, rejection of the golden initiative by the Swiss, will probably not convert to descends on CHF/PLN and in the upcoming days franc will cost between 3.46 and 3.49. Similarly small diversity is expected on EUR/PLN, although if PMI will be in the limits of 52 and below, the euro falling below 4.17 is not excluded.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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