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Daily analysis 09.02.2015

, author:

Marcin Lipka

Better data from the US labour market increases the odds for interest rate hike in mid 2015. Opportunity for a cease fire in Ukraine. SNB did intervene on the currency market in January. Rating perspective increase is a good message for the Polish zloty, but the PLN has been losing value due to weak Chinese data.

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

  • No macro data which may significantly affect the analysed pairs.

US data and the interest rate hikes

The NFP data published on Friday were undoubtedly solid. The US economy added 257k jobs in January which was around 20-30k more than the market consensus. Additionally, two previous months were revised upward by 147k. It caused that November reading jumped to over 400k which was the best result in private payrolls in more than 10 years.

A significantly better than estimates was the reading on wages which on average rose 2.2% on the yearly basis leaving behind a grim number published last month. The only one hurdle was a small increase of jobless rate but it was solely caused by the interest in participation rate from 62.7% to 62.9%. It is a confirmation that the so called labour slack diminished so in the longer run the whole economy should benefit.

After the Labour Department publication hit the wires we had a statement from an important FOMC member. Dennis Lockhart (voting this year, leaning dovish, close to the Yellen's view) told that “As of today, I remain comfortable with the assumption that circumstances will come together around mid-year, or little later, that will deliver sufficient confidence to begin normalization with the lift off decision”. It clearly means that if the data continues to be solid the rate hikes are scheduled to be hiked around the mid year.

Regarding the future interest rates move by the Federal Reserve it is worth to at today's article in the “Financial Times” wrote by Lawrence Summers. The former treasury secretary, close ally to president Obama and the main Yellen's contender for the FOMC chair published pretty statement in the “FT”. He urges the FOMC to look more into the inflation. The prices measures underperformed the target in the recent years so it may not be bad if the PCE rises above 2 per cent “to catch up to the Fed's price level target path”.

Additionally, Summers claims that the stronger dollar can hurt both foreign borrowers and US exporters. He also points out to the significant difference between market future yield and what Fed publishes in their projections. These opinions don't seem to be very different and even some current FOMC publishes similar arguments. But in 2013 Summers was regarded as much more hawkish than Yellen. And now his opinion seem to be much more benign than the FOMC consensus. It is interesting whether his remarks find greater attention.

European effort is going to payback?

On Friday we wrote that odds for cease fire in Ukraine are pretty small. Currently, however, it worth to seem that the main players in the conflict are making a significant effort to end the violence.

The voyage begin with Merkel and Holland visit in Kiev on Thursday. On Friday they both went to Moscow. The day after we had several stronger comments from all sides during the conference in Munich and the weekend ended with four-party talk between German Chancellor and presidents from France, Russia, and Ukraine. Today, on the other hand, Merkel is scheduled to meet with Obama in Washington while in two days, if all goes fine, the meeting in Minsk expected to be held on Wednesday.

What is even more interesting, to stop the capital inflow, ministry of finance decided to halt all debt issuance both in the local and foreign currency. Usually such measures are announced when there is a risk with capital outflow. This time the situation is opposite.

It is also pretty surprising how optimistic reactions are presented by the Russian press, which actually counting hours to the Minsk conference. Additionally, there is also some smart game from the EU diplomacy which leaks reports to the press that, despite Merkel official stance, Germany is not against supplying weapons to Kiev. Berlin also plans to increase the pressure on Kremlin and push for more sanctions.

Building some more pressure, involvement from key players and diplomatic game pushed us to revise the previous expectations. Currently we should assume that in Minsk some kind of agreement may be really singed up. Regarding the currency market it would be a good message for a ruble as the Russian currency should also benefit from rising oil prices.

Strong interventions form the SNB in January

On Friday the SNB published data on currency reserves. It is worth to note that its value is presented in CHF what at first sight does show the full picture. Switzerland claims that it had 498 billion francs in January vs 495 in December. This small change is however, tricky.

The SNB reserves mainly consist of euro and dollar. In January both currencies depreciated by more than 10% to the CHF. It means that the amount of assets denominated in EUR and USD would have to risen also more than 10% to have the same value in Swiss franc after its appreciation.

More than 50 billion intervention had also its confirmation in “sight deposit” increases. As a result we should conclude that the market rumours were valid and Switzerland still tires to keep the EUR/CHF above 1.05 level. To evaluate this strategy we will have to wait at least few more weeks.

Foreign market in a few sentences

The market still evaluates US data and it will we pretty sensitive for any comments from the Federal Reserve members. The more optimistic statements the more odds for dollar appreciation. On the other hand regarding the common currency it is worth to look at the situation in Greece and Ukraine. Some agreement from Minsk or Wednesday's public creditors meeting can generate changes on the euro.

Significant zloty dpreciation

The positive information from Standard & Poor's on upgrading Polish rating perspective on Friday was short-lived. The zloty appreciated only slightly and today in the morning it is pushed for significant losses with EUR/PLN traded above 4.18 and CHF/PLN close to 4.00.

Data from China are seen as a bigger drag for the overall sentiment. The export dropped 3% in January while import slided 20%. Lower internal demand and weak housing combined with commodity slide weighed on the result. On the other hand the lower demand for Chinese goods should be contributed to the stronger CNY which is pegged to the USD.

Currently the base case for EUR/PLN is a trade below 4.20. The CHF/PLN appreciation above 4.00 level should be short-lived. Much higher odds are for the USD/PLN to continue the climb especially when the EUR/USD is traded below 1.13.

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

Range EUR/USD 1.1250-1.1350 1.1150-1.1250 1.1350-1.1450
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.6600-3.7000 3.6900-3.7300 3.6500-3.6900
Range CHF/PLN 3.9600-4.0000 3.9600-4.0000 3.9600-4.0000

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.5050-1.5150 1.4950-1.5050 1.5150-1.5250
Range GBP/PLN 5.5900-5.6300 5.5700-5.6100 5.6100-5.6500

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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