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Daily analysis 13.10.2015

, author:

Marcin Lipka

Value of the Chinese import depreciates very quickly, but it may be significantly disturbed by the low prices of raw materials. Leal Brainard about global dangers for the American economy. The zloty is slightly weaker, but should remain relatively stable.

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

  • No macro data that could have a significant impact on analysed currency pairs.

New mysterious data from China

The market is currently focussing on any data coming from China. This time investors anticipate the Chinese data about the foreign trade. At first sight, the readings look good. In September import expressed in renminbi decreased by 17.7% in comparison to the same month last year. The expectations were within the limits of minus 16.5%.

Export looked significantly better than the predictions of the economists surveyed by the Bloomberg agency. It decreased by 1.1%, while the estimations were 7.4%. This allowed to achieve a record surplus in foreign trade, on a level of 60 billion USD. This fact can be a positive factor for the GDP for the third quarter, because last year's surplus in September was by half lower.

However, the market is not only analysing the data regarding the condition of China, but also its impact on the perspectives for the global economy. A decrease in import by almost 20% is a danger of the weakening of China's inner strength, or a smaller number of structural investments. In time, it may translate to a demand for consumption goods from the developed countries. This on the other hand, may have a negative impact on their condition.

However, it is worth noting that China is a huge recipient of raw materials. According to the data from the International Monetary Fund (IMF), in 2014 China was responsible for 60% of global consumption of iron ore, and used half of the production of aluminium and copper. On the other hand, it is worth underlining that the industrial metals were recently very overvalued. Thus, a decrease in import may partly be a result of a decrease in the costs of raw materials.

This is confirmed by the data about the volume of import. In September, China imported 86 million tonnes of iron ore. This was close to the record amounts (the 6-month-long average is 78 million, and is only by a million lower than the highest level, recorded in September 2014). The situation looks similar when it comes to copper. For a year the 6-month-long average in copper import is between 1.0 and 1.1 million tonnes. This is twice as much than 4 years ago. In September, copper import was 1.21 million tonnes, and was the third result in history.

Thus, when focusing on the volume of import of basic raw materials to China, no slowdown is seen in the data. One may speak about a maintenance of a high contribution of raw materials in the Chinese economy, but the headline reading indicating a decrease in import by almost 20%, may be misleading in this matter.

Few words about the foreign market

Yesterday, Leal Brainard made a testimony regarding the matters of the monetary policy. She is the Fed representative, responsible for foreign matters, and her views are considered as more dovish than the consensus. However, she did not refer directly to the date of the first monetary tightening, even though her previous statements suggested that she is a part of a small fraction that is against this year's hikes.

According to Brainard, the American economy is in a good condition (employment, consumption, the real estate market), but the risk may come from abroad. The Fed representative also took note that the matters regarding the Chinese slowdown, need to be seen in a more global way. By this she means, among others, an influence that this fact has on other economies from which export of the United States is dependent. According to Brainard, this analysis is better than just focusing on a direct and relatively small demand for the American goods from China. This is definitely a good argument for the dovish part of the Fed. Especially considering what is going on in Latin America, and a relative weakness of the Canadian economy.

When it comes to the behaviour of the EUR/USD and today's market sentiment before noon, one may observe that the market is willing to go above 1.1400. The German ZEW was not encouraging in this matter. But if the American stock market does not improve its quotations by the evening, this attempt may be successful. However, considering the behaviour of the debt market on the other side of the ocean, the main currency pair is high.

Slight pressure on the zloty

Quite negative sentiments on the European capital market, and a decrease in quotations on the American market suggested by the S&P 500 contracts, are a negative sign for the zloty. Thus, the euro costs by 0.01 PLN more than yesterday. However, stabilisation of the rate in a relatively thin range is the base case scenario, and crossing the area of 4.25 on the EUR/PLN is not.

The situation on the Swiss currency looks similar. Maintenance of the EUR/CHF above 1.09, and the EUR/PLN below 4.25 guarantees the CHF/PLN to stay below the limit of 3.90. There will be no important macro data until the end of today, thus the franc, as well as the euro, should not clearly deflect from the current levels.

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

Range EUR/USD 1.1250-1.1350 1.1350-1.1450 1.1150-1.1250
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.7100-3.7500 3.6700-3.7100 3.7500-3.7900
Range CHF/PLN 3.8400-3.8800 3.8400-3.8800 3.8400-3.8800

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 5.6800-5.7200 5.7000-5.7400 5.7000-5.7400

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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