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Daily analysis 13.02.2014

, author:

Marcin Lipka

More rumors on possible negative deposit rates in the Euro Zone. Bullard draws a base case scenario for the Federal Reserve. The pound is significantly higher despite BoE wanting to be as dovish as possible. Solid data on Polish BOP is positive for the zloty.

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

  • 14.30 CET: Weekly jobless claims form the US (survey 330k).
  • 14.30 CET: Retails sales from the US (survey: minus 0.1% m/m; excluding gas and autos +0.2 %).

Coeure, Bullard and Carney

We had another interesting day regarding central bankers' speeches. After the Janet Yellen's Tuesday hearing before the US House, the EUR/USD stabilized around 1.36 level. However, just before the European noon, Thomson Reuters interview with Benoit Coeure hit the wires (http://www.ecb.europa.eu/press/inter/date/2014/html/sp140212_1.en.html). The ECB Executive Board member answered a question on negative deposit rates saying that “it is a very possible option. That is something we are considering very seriously”. It pushed the common currency lower, near the mid range of 1.35 level, but later we were gradually climbing and the morning session began again above 1.36. It is possible that investors recalled the recent Mario Draghi conference, where the ECB chief was really cautious about indicators on further monetary easing. In result, the EUR/USD bounced back to the previous levels (above 1.36).

It is worth to spend a while analyzing the Bloomberg interview with James Bullard, The St. Louis Fed's President (dovish, non-voting this year) said that he doesn't see reasons to change the pace of QE reduction and the latest NFP data were disrupted by the weather (positive for the dollar). He also added that changing tapering would be a very strong signal (can be interpreted that even in case of weak jobs report in February the QE will not have to be paused). Regarding the inflation, he claims that the PCE should be much closer to the target at the end of the year and should hit 1.6-1.7% (several months ago he claimed that the inflation is a significant problem; so the current message can be also regarded as a bit hawkish). Answering the question on the forward guidance he said that when unemployment falls to 6.5%, it will be natural that the FOMC focuses more on qualitative measures (broader indicators of economy, not only inflation and jobs). On one hand, it gives more flexibility regarding the policy, but on the other hand it clearly leads to the withdrawal of the monetary stimulation.

For the cable investors the BoE inflation report was one of the most important data in the current month. The pound strengthened significantly after the Bank of England updated its forecast for 2014 where the growth is estimated at 3.4% (in November it was projected at 2.8%). Mark Carney tried to sound as dovish as possible claiming that the growth is broad-based, global economy is still weak and inflation potential is limited. However, taking into the account his recent mistakes, when he anticipated half a year ago that the unemployment would not drop to 7% until 2016, whereas it is just 0.1% shy of that level, many investors would rather price in much sooner a rate hike. In result, the pound should be supported in the medium term.

Summarizing, on Thursday investors should focus on the macro data from the US (mainly on the retail sales). Generated around 10.00 CET strong upside move on the EUR/USD, should be rather short-lived and if we get no surprises from the US reports the day will rather end closer to 1.36 than 1.37 level.

Firstly stronger, later weaker

The Polish currency positively reacted to the data published yesterday on the BoP. For the first time in at least 20 years, the local economy enjoyed a surplus on the trade balance (+2 billion euro). Moreover, the current account was also pretty solid. The deficit was only 6 billion euro (around 1.5% GDP), whereas in 2012 it was more than two times larger. Finally, taking into account a clear pressure on the economies with high and increasing, the Polish C/A looks really encouraging.

During the morning hours the zloty has been loosing some value. It can be partially contributed to a slightly weaker sentiment on the equities and disappointing data from the Turkish economy (the current account was higher than anticipated and the lira has weakened). In the second part of the day the base case scenario will be a range trade between 4.16-4.18.

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0500-3.0900 3.0300-3.0700 3.0800-3.1200
Range CHF/PLN 3.4000-3.4400 3.4000-3.4400 3.4000-3.4400

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

Range GBP/USD 1.6350-1.6450 1.6450-1.6550 1.6250-1.6350
Range GBP/PLN 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

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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