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Daily analysis 03.09.2015

, author:

Marcin Lipka

What kind of signs will Mario Draghi want to send to the market during today's press conference after the EBC meeting? Pessimistic expectations from the International Monetary Fund. The scenario of the stabilisation of the zloty will possibly be enforced after tomorrow's meeting of the MPC.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Press conference of Mario Draghi after the meeting of the European Central Bank.
  • 14.30: Weekly jobless claims in the USA (estimations: 275k).
  • 16.00: The ISM index for the American sector of services (58.2 points).

Expectations vs a possible scenario

Due to the Chinese commotion, a decrease in the prices of raw materials and also a slight enforcement of the euro to the currencies of the eurozone's main trading partners by approximately 2%, the market speculates that Mario Draghi may suggest an increase in quantitative easing. It would be based on a warning of extension of the QE beyond September 2016.

However, currently it is very unlikely to perform this scenario. First of all, the EBC chairman does not want to cause an additional variability on the market, based only on (still fragmentary) information from China. Second of all, even if the European monetary authorities take this scenario into consideration, it is not the best moment to perform it. The market has reacted very emotionally in the past few weeks. If the suggestions regarding further easing are revealed now, it could be misunderstood.

Additionally, it is known that Draghi and his associates are rather late with their decisions. It is due to the fact that a strong group which opposes the monetary stimulation exists inside of the EBC. This also decreases the chance for more sudden movements.

The only thing that can be expected is a slight downwards review of inflation, especially for 2016. A clear decrease in the price of raw materials and a slight enforcement of the euro, can have an impact on consumer prices. On the other hand, the inflation prognosis for 2017 can remain the same and will have the same value as it did in June (1.8%). This signal would be enough to deny the necessity of quantitative easing.

As a result, it is possible that Draghi will want to sound neutral. Apart from the hypothetical review of inflation, the EBC chairman will also want to emphasize positive changes in the European economy. These are a decrease in unemployment, an increase in GDP which was faster than in the past quarters, and developed lending. Even if some more variabilities are noticed during the press conference, at the end of the day quotations of the euro should not clearly differ from those observed in the past few hours.

IMF pessimistic towards global economy

A summit of G20 in Turkey will be held this Friday and Saturday. Recently the International Monetary Fund (IMF) published a quite pessimistic document. The IMF takes notice of a slowdown in the emerging markets, and the slow development of the developed countries.

Apart from the disturbing attitude of the Fund towards the global economy, it is also worth noting the IMF suggestions about keeping or deepening the mild monetary policy in developed countries. In the United States, the decision regarding the tightening should depend on data. Also, due to a small salary and price pressure the tightening should be a gradual process.

On the other hand, the IMF advised the monetary authorities of the eurozone to extend the program of quantitative easing, if there are no sufficient signs showing that inflation reaches its mid-term target.

In the case of Japan, the Fund clearly states that the central bank should be prepared for further easing. Can such suggestions have an impact on particular central banks? In a longer period, when the dangers will be materialized, probably yes. However, there is a small chance for the EBC to apply them today. Additionally, a few months ago the IMF suggested that the Fed should postpone the moment of hikes to 2016. However, a significant part of the FOMC members contemplate the monetary tightening to be performed already this year.

Few words about the foreign market

Today's main event will be the press conference of Mario Draghi. In our opinion, the EBC chairman will try to sound neutral, in order to not cause additional uncertainty on the market. For the time being, there is not enough information to clearly review the prognoses for the eurozone, apart from a slight decrease in inflation for 2016. As a result, the euro should end today’s close at the current levels, even if it is more variable during the press conference.

Council's attitude should stabilize the zloty

Yesterday's neutral attitude of the MPC members present at the press conference after a two day meeting, should stabilize the zloty's quotations. Representatives of the national monetary authorities did not even want to discuss the hypothetical scenarios, which could cause changes in the monetary policy. Thus, the chance for any changes of interest rates by the end of the year (and probably also in the first quarter) is very small.

This fact should stabilize the zloty, and discourage the capital wanting to decrease the cost of credit and wear off the PLN, at least for some time. Today's meeting of the EBC should also not create any bigger changes on the zloty. However, if Draghi suggests a will to extend quantitative easing, the EUR/PLN can depreciate by approximately 0.02 PLN. Even if this alternative scenario comes true, depreciation below 4.20 is unlikely.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1150-1.1250 1.1250-1.1350 1.1050-1.1150
Range EUR/PLN 4.2100-4.2500 4.2200-4.2600 4.2000-4.2400
Range USD/PLN 3.7400-3.7800 3.7200-3.7600 3.7600-3.8000
Range CHF/PLN 3.8700-3.9100 3.8700-3.9100 3.8700-3.9100

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Range GBP/PLN 5.7400-5.7800 5.7200-5.7600 5.7600-5.8000

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 Cinkciarz.pl Sp. z o.o is prohibited.

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