Daily analysis 06.10.2015

, author:

Marcin Lipka

Better global sentiment and weaker German readings haven’t changed the base case scenario for central banks. The RBA meeting was neutral in the global context. Today's MPC statement may be more sceptical than recently and can push the zloty lower.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • 16.00: Conference after Polish MPC meeting.

Why The Federal Reserve wants to keep its earlier promise

Economists have been suggesting that if further US data turns out to be disappointing the Fed might extend the zero-interest-rate policy well into 2016. This opinion is shared by chief Goldman Sachs economist Jan Hatzius. This view seems to be obvious especially because the Federal Reserve claims that it is “data dependent” regarding the monetary policy.

However, even if the FOMC has already some doubts regarding the future monetary path the Committee would not like to reveal it so early. There are at least a few arguments supporting this view. Firstly, on September 24th Janet Yellen confirmed that the majority of the Committee including herself, expect to hike the benchmark this year. As a result, if the following readings from the jobs markets turn out to be around 150-200k and the wage growth increases, the odds for tightening may rise markedly.

Additionally, besides some weaker industrial publications and the most recent job report the other data looks solid – real estate market, consumers confidence or the services industry. As a result, the Fed would like to keep the consensus long enough to not be forced to change its mind again if the job market returns to the trend.

Finally, we are expecting the Fed Reserve members who are close to the consensus to want to keep their view on pushing the rates higher this year, even though there is only 35% chance for a hike in Q4. This view should also be presented by John Williams who is scheduled to speak later today. The president of the San Francisco Fed should also give a boost to the dollar and push the EUR/USD even below 1.1150 during the Asian session.

RBA and German data

Today's message from the Reserve Bank of Australia (RBA) was fairly neutral. According to the MPC from Sydney “the global economy is expanding at a moderate pace, with some further softening conditions in China and east Asia of late, but stronger US growth”. According to the RBA, the Fed “is expected to start increasing its policy over the period ahead”

In the global context the German factory orders look weak. The data is fairly old (from August) which is even more surprising especially due to the fact that the full effect of the Chinese turmoil and Volkswagen scandal didn't take a toll.

The factory orders dropped by 1.8% m/m, while expectations were around +0.5% m/m. Moreover, the reading from the previous month was revised downwards from minus 1.4% to minus 2.2%. As a result, the y/y data is only +1.9, while expectations were at +5.9%. Further deterioration of German data is possible especially due to the macroeconomic situation worsening recently and that the automotive sector can feel some pain at least for the coming months.

The foreign market in a few sentences

If today's Williams statement keeps the perspective to hike interest rates this year it should be a strong signal for the dollar to regain its position. It may even push the EUR/USD lower, towards 1.1150 at the beginning of the European session.

The zloty before the MPC meeting

The lack of a zloty improvement even in a better market sentiment suggests that the PLN might be more nervous during today's MPC meeting. The zloty can be quite volatile even though the odds for any interest rate move are close to nothing.

In our opinion the risk aversion towards the zloty has both local and global context. Firstly, weak data from Poland published in the recent weeks – the PMI, retail sales, foreign trade. It may decrease the path of the projected growth published in the November Inflation Report. The Committee would have to consider it today.

A more sceptical view on the economy and some threats from abroad may cause that the market participants can start evaluating an interest rate cut at the beginning of the following year. Additionally, the PLN may be negatively affected by the incoming election especially if none of the leading parties will be able to form a stable government. As a result, the base scenario for the EUR/PLN, with further global deterioration, may be moved towards the 4.25-4.30 range.

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 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7700-3.8100 3.7400-3.7800 3.8000-3.8400
Range CHF/PLN 3.8600-3.9000 3.8600-3.9000 3.8600-3.9000

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

Range GBP/USD 1.5150-1.5250 1.5050-1.5150 1.5250-1.5350
Range GBP/PLN 5.7000-5.7400 5.6800-5.7200 5.7200-5.7600

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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