Afternoon analysis 22.02.2016

, author:

Marcin Lipka

Investors are selling the pound, due to fear of the Brexit. The pound is the cheapest against the dollar since 2009. Weak reading of the American PMI. The zloty remains stable against the euro, but loses against the American currency.

Pound is under serious pressure

The British currency continued its strong depreciation during the afternoon trade. The GBP/USD pair dropped to the area of 1.4060, which is its lowest level since the first quarter of 2009. The popular “cable” is getting increasingly nearer to its 30-year minimums, which are within the limits of 1.3500.

The market is constantly receiving information from the investment banks regarding the situation on the GBP. According to Citigroup, cited by the Bloomberg agency, the likelihood of the United Kingdom leaving the European Union increased from the range of 20-30%, to the range of 30-40%. Citi also emphasizes that according to the ComRes surveys, the conservative mayor of London, who is planning to lead the campaign for the Brexit, is the only one with a “positive net ranking.” This may help him to attract supporters of leaving the EU.

On the other hand, British economist Jacob Nell of Morgan Stanley, told the journalists in London that if the Brits decide to leave the Union, the GBP/USD may drop to the level of 1.30. Moreover, Nell claims that even if the United Kingdom stays within the EU, the pound will still cost approximately 1.40 dollars. MS estimates that the likelihood of the Brexit is 35%.

Jane Foley, the analyst at Rabobank, claims that if the United Kingdom leaves the European Union, the EUR/GBP may increase to the level of 0.85 (currently 0.78). According to her, “the political uncertainty in the three succeeding months, may clearly increase depreciation pressure and volatility of the GBP.”

As we wrote in today's Daily Analysis, the pound market will mainly observe the information from public surveys. If they do not show a clear advantage of the opponents of the Brexit, and Boris Johnson gains more votes among conservative representatives of the parliament, the pound should remain under pressure.

Weak PMI from the USA. Zloty relatively stable.

After the weak PMI from the euro zone, the ones from the USA were also not good. They equaled the lowest level since 2012, and dropped to the level of 51 points, against economists' consensus of 52.4 points. In his comment regarding the data, chief economist at Markit (the company preparing the surveys among the entrepreneurs), claimed that every component of the survey, “from production, orders, and export, to employment, supplies, and prices, is a warning about the condition of the industrial sector.” However, for the time being we do not need to expect a clear pressure on the dollar, due to a weak condition of production. The American currency can be overvalued only by a significantly worse condition of the services sector.

When it comes to the national market, the EUR/PLN remains within the range of 4.36-4.37. Even though, during today's increase in appetite for risk, the forint did better, and gained approximately 0.4% against the zloty. The general weakness of the national currency can still be seen, and it is difficult to work off the losses to the Hungarian currency. Since the beginning of the year, they still are approximately 4-5%.

Data from the USA and Poland

Today's data from the American real estates market are slightly weaker than expected, especially when it comes for initiated investments. A decrease has been quoted in every region, but it was the biggest on the East Coast, probably because of January's blizzard.

On the other hand, the industrial production from the USA, was a positive surprise. It increased by 0.9% m/m against the expectations approximately of 0.4% m/m. However, the data for December was reviewed from negative 0.4% to negative 0.7%. In general, the publication should sustain the positive sentiments.

On contrary to yesterday's readings, the ones from today were definitely lower than economists expectations. Retail sales increased only 0.9% y/y, against the forecasts of positive 2.9%. The industrial production was +1/4%, against the consensus on the level of positive 2.9%. However, the data could be disturbed by the seasonal factors.

After being unseasoned, according to the GUS data, the production increased 3.3% against December's reading on the level of 4.0% (without being unseasoned it was +6.7% y/y one month ago). On the other hand, a real increase in retail sales (including deflation), was on the level of +3.1%.

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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