Daily analysis 15.02.2016

, author:

Marcin Lipka

Statements from the chairman of the People's Bank of China regarding the renminbi. Series of data from China and Japan increases the chances for monetary and fiscal stimulation. The zloty remains stable, but it can gain slightly to the euro if Mario Draghi appears more dovish.

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

  • Due to President's Day holiday, there is no session in the USA.
  • 15.00: Testimony of the ECB chairman Mario Draghi in the European Parliament.

A significant improvement of sentiments

Friday's data about American retail sales figures, were a crucial moment for the markets at least in short term. It was much higher than economists' expectations, and in comparison to December it increased from 2.4% y/y to 3.4% y/y. Basically, every category (apart from fuel and electronics) quoted a significant growth. This fact supported the stock markets, raw materials, and at the same time it stopped profitability of the American bonds from dropping.

On the other hand, a long interview with the chairman of the People's Bank of China (PBOC) was published this weekend. Zhou Xiaochuan confirmed that the Bank's aim is to sustain the renminbi's exchange rate, “on a stable level which can be reached only when the exchange rate is closer to the level of balance”.

Considering that the level of balance for the renminbi is at the level of 100 in relation to the basket of 13 currencies included in the Chinese trade exchange, one can come to a conclusion that current quotations of the renminbi are close to this level. According to the Bloomberg agency calculations, this index is currently to the level of 100.66.

The PBOC also took note that it is crucial to, “know the difference between the capital's outflow, and the capital's escape”. Xiaochuan thinks that the Chinese enterprises, “are reducing or paying their debts denominated in the dollar”. The chairman of the Central Bank also suggests that the export companies stop exchanging the foreign currencies to the renminbi. Thus, the statements from the PBOC representatives suggest that China is not experiencing the capital's escape.

In general, it is clear that the Chinese monetary authorities are trying to calm down the situation. It may be working to a certain degree. Today, the renminbi strengthened to the dollar the most since 2005. The USD/CNY pair is now on the level of 6.50.

Weak readings from Japan, and mixed readings from China

Good sentiments were not spoiled by weak data from Japan. This country's economy reduced again in the fourth quarter, and the entire year was closed with only a 0.5% increase. However, this was not an obstacle for the Nikkei index to grow by more than 7%.

However, the Wall Street Journal wrote that reduction of the economy in, “fourth out of seven past quarters comes in a crucial moment for the Japanese prime minister, and an economic program known as Abenomics, and it may lead to a demand for further easing of monetary and fiscal policy”.

After publication of today's balance of foreign trade, similar opinions appeared regarding China. Although, the situation in the case of Beijing is slightly less complicated. January's import expressed that the renminbi dropped in a y/y relation by 14.4%. However, it is worth emphasizing that it was significantly influenced by lower prices of raw material prices.

On the other hand, the volume of import of industrial metals and fuel is still not showing a breakdown in demand. January's import of ore increased by 4.6% y/y, and of copper by 5.3% y/y. The import of oil decreased by 4.6%, but the purchase of fuel abroad increased by 15.6%. On the other hand, a significant decrease in export (by 6.6% y/y) is partially caused by a breakdown of demand from Brazil (-44.4% y/y), and the Republic of South Africa (-34.7%).

Few words about the foreign market

The situation in the capital and currency market is very dynamic in recent days, and a change of investors' sentiments is occurring incredibly fast (sometimes basing on fragmentary data). Today, however, the FX will probably focus on Mario Draghi's speech in the European Parliament. If it is as dovish as the one made a few days ago in the Bundesbank, we can expect a further improvement of sentiment, and a clear depreciation of the EUR/USD below 1.1200.

The zloty is stable and with a chance for appreciation

The Polish currency should also take advantage of a significant improvement in the global sentiments. Especially that today's interview of the Polish Press Agency with Eryk Lon, shows once again that the national monetary authorities have currently no intention to ease the monetary policy. Today's speech of Mario Draghi can also be a supportive element, especially for the zloty in its relation to the euro. It is possible that it will initiate a new phase of a more aggressive monetary easing in the euro zone.

Today, if the ECB chairman actually suggests a significant increase in monetary stimulation, the zloty could become a beneficiary of these changes, especially considering that the national currency remains relatively weak, and profitability of treasury bonds is high. This could force the wallet capital to be more involved in the Polish market, at least in the short term. Thus, it is possible that today's session on the EUR/PLN may end within the limits of 4.37-4.38.

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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