Daily analysis 14.10.2015

, author:

Marcin Lipka

The current view of the voting Federal Reserve officials regarding the monetary policy for this year. The US retail sale is at the centre of focus today. The Polish zloty is stable before the current account publication.

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

  • 14.00: Current account balance from Poland (survey: minus 1.01 billion euro)
  • 14.30: Retail sales from the US (survey: +0.2% m/m, excluding cars: minus 0.1%; excluding gasoline and cars +0.3% m/m)

What is the current Fed consensus?

After yesterday’s comments from the Federal Reserve governor Daniel Tarullo for CNBC we can build the consensus inside the group of voting FOMC members regarding the monetary policy in 2015.

Because two governors seats are empty in the Committee, voting right has 10 central bankers – 5 governors, the New York Fed chief and 4 rotating presidents of the regional Federal Reserve branches. From the statement presented on September 24th it is possible to conclude that the chair Yellen is in a camp which wants to hike the benchmark this year. Even after some weaker macroeconomic readings published recently her view probably hasn't changed.

Taking into account the most recent comments for the media and statements we should conclude that both Stanley Fischer and William Dudley are expecting to hike the benchmark in the current quarter. There is also a high probability that Jerome Powell would increase the rates. He hasn't commented on the monetary policy since September’s meeting, but his views at mid-year were very close to the consensus and there is a slim chance that he has moved them towards 2016.

Three out of four rotating Federal Reserve members are expected to vote for the hike this year – Jeffrey Lacker, Dennis Lockhart and John Williams. On the hand, in line with yesterday’s comments from governor Tarullo and Monday's statement from Lael Brainard, which was balanced, but still more dovish than the consensus, we should put the two governors into the camp which is rather heading towards a 2016 hike. On the other hand, their view doesn't seem to be that clear (no time frame was given), so they probably would not dissent.

The only rotating Fed, voter who will not vote with the consensus is Charles Evans. The president of the Chicago Fed claims that he would like to hike the benchmark in mid 2016.

As a result, 7 out of 10 voting Fed participants are leaning towards an interest rate hike this year. The rest has a different view, but only one is really convinced to keep the benchmark well into 2016. The consensus, of course, can be changed as it happened before June and September FOMC decision. However, taking into account that most opinions were presented after some weak readings and there is only a few months to the end of the year the odds for a change are much smaller than in the previous quarters.

The foreign market in a few sentences

In the short term retail sales reading from the US can be important for the dollar. Many Fed officials claim that the consumer condition is crucial regarding the monetary policy. If the sales fail to meet expectations, especially stripping cars and gasoline, the market can even push the EUR/USD towards the 1.15 level. On the other hand, in the case of better publication the dollar can regain some ground and correct the most heavily traded pair by around 50 pips.

Stable zloty before the current account data

The most recent hours have been fairly calm for the zloty and the EUR/PLN pair is traded around 4.23 now. Today, the base case scenario is still stabilization around the current levels. Theoretically the positive impulse may come from current account data.

Economists surveyed by Bloomberg expect the C/A deficit to be around 1 billion euros, and the trade deficit close to 500 million euros. This scenario, however, is not supported by the most recent GUS data, which shows that the August trade recorded a surplus around 300 million euros. If the NBP data matches GUS data the current account deficit should be much lower than anticipated. It can help a bit to the zloty, but still some participants are aware of the case so it may already be priced in.

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 3.8600-3.9000 3.8600-3.9000 3.8600-3.9000

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

Range GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Range GBP/PLN 5.6800-5.7200 5.6600-5.7000 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 Sp. z o.o is prohibited.

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