Daily analysis 16.02.2016

, author:

Marcin Lipka

The decision by Saudi Arabia and Russia to keep the same production level did not receive an enthusiastic feedback from the oil market. Expectations regarding the ECB actions in the March meeting are increasing. The zloty and the Hungarian forint lose value slightly.

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

  • 14.30: New York Empire State index (estimations: negative 10.5).
  • 15.00: Testimony of Patrick Harper from the Philadelphia Fed.

Once again oil takes the initiative

This morning's event was the meeting of the representatives of Russia, Saudi Arabia, and Venezuela, in Qatar. The discussions concerned the limiting of oil production by its main producers. Recently, the rumors about a decrease in supply were appearing quite often, and it was one of the reasons of an increase in value of the WTI and Brent by 15%.

The result of these discussions was an agreement that Riyadh and Moscow will leave the production at the current level. This news caused the oil to lose approximately 3-4% due to the expected reduction of production, and a quicker limitation of oil's oversupply.

Additionally, it is worth noting that in January Russia produced the most oil in its history, which was 10.88 million barrels per day. The situation in Saudi Arabia is similar, and disregarding this year's seasonal annual peak, the production is at 10.2 million barrels per day.

The International Energy Agency's (IEA) report estimates that in the first six months of 2016, the daily overproduction of oil will be approximately 1.75 million barrels. Along with the above information, it shows that today's decisions are probably not sufficient enough for a clear increase in prices.

However, this might be one of the first stages of negotiations. If Venezuela and Qatar manage to work out a wider agreement, which will include active participation of Iran, the chances for a stronger rebound on oil before the end of the year (when the market's supply will probably be satisfied by the global demand) may increase.

Expectations before the ECB meeting

The past week's market disturbances, and statements from the ECB chairman Mario Draghi, clearly increase the expectations regarding the euro zone's monetary authorities in March. The Royal Bank of Scotland, cited by Bloomberg, expects that the deposit rate will decrease by 20 bp next month, next by 20 bp in June, and also have an increase in the QE by 10-15 billion euro.

On the other hand, JPMorgan claims that in March, the ECB will cut interest rates by 10 bp, to negative 0.4%. Additionally, it expects an increase in the QE by 10 billion, as well as an extension of an assets purchase operation to mid-2017. According to the terminal interest rate contracts, the decrease until March is on average 11 bp, and until June it is 18 bp.

Investors probably still remember the events from December, when these expectations were similar. At that time, the QE had not increased, and interest rates had decreased by only 10 bp. This caused the EUR/USD to grow by 300 points during one session.

Thus, part of the currency market can now be skeptical about the March decision. Investors may want to wait for the results, before undertaking any specific actions. As a result, the expectations themselves may not be sufficient enough, in order to overvalue the European currency.

Few words about the foreign market

Today's overvalue of oil which was caused by the discussions in Qatar, also translates to a slight increase in risk aversion. This caused the EUR/USD to grow to 1.1200, and the USD/JPY to go below 114. Currently, the condition of the American stock markets will be crucial in evaluation of the EUR/USD. If the Americans go back to buying shares, the main currency pair may get near to the level of 1.1100.

Zyzynski about interest rates

Before noon, the zloty lost a slight value in relation to the main currencies. The Hungarian forint behaves the same way, which is why there is a small overvalue; a result of a slight deterioration in the global sentiment. A statement from professor Zyzynski for the Polish Press Agency, is also worth noting in the context of the national monetary policy.

The government's candidate for MPC membership said that the monetary policy requires a good research. “Everything has its positive and negative sides, and we need to analyze the results of an increase, as well as a decrease in interest rates”. This is similarly yet another opinion from the new representative of the Council. Thus, we may assume that there will not be a decrease in interest rates in March, even if it appears that the path of inflation in the NBP macro-economic projections is clearly lower than it was assumed in November.

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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