Daily analysis 22.02.2016

, author:

Marcin Lipka

The pound is under pressure due to a hypothetical exit of the United Kingdom from the European Union. The chances for an understanding between the oil producers are increasing. Weak PMI indexes from the euro zone. The zloty is gaining to the euro on the wave of a better global sentiment.

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

  • 15.45: The initial PMI reading from the American industry (estimations: 52.5 points).

Pound is under clear pressure

On Friday evening, it seemed that the understanding between London and Brussels should decrease the tension on the British currency, which regarded the United Kingdom hypothetically leaving the European Union. It was interpreted this way by the pound market participants. At the end of the week, the GBP/USD pair increased to the area of 1.4400.

However, the situation changed during the weekend. The conservative mayor of London, Boris Johnson, decided to begin a referendum campaign for the United Kingdom to leave the European Union. This increases a polarization of views inside Prime Minister David Cameron's group, and causes the campaign for staying in the EU more difficult.

The currency market estimated these dangers quickly. The GBP/USD pair lost more than 20 pb in comparison to the closing on Friday. Also, investors remember the previous estimations from the investment banks regarding the “cable's” rate. In December, Deutsche Bank claimed that the pound will cost 1.27 dollars at the end of 2016, and only 1.15 dollars in 2017.

On the other hand, at the beginning of February, Goldman Sachs did not believe that the United Kingdom could leave the EU. However, if it was to happen, the GBP/USD could go down to the range of 1.15-1.20 USD. When converting these expectations to the Polish market, and assuming that the dollar will remain within the limit of 4.00 PLN, the pound's exchange rate would be approximately 4.60-4.80 PLN.

The uncertainty regarding the referendum planned for June 23rd, is also intensified by the comments of the market's participants. The world's biggest bond fund PIMCO, cited by The Wall Street Journal, claims that, “there is even a 40% of chance that the United Kingdom will leave the EU.”

The Moody's agency also published a statement during the night at UTC+01:00. It says that, “the decision for leaving the EU will be negative for loan credibility”, and if it appears that the United Kingdom leaves the Union, “the perspective will become negative.”

The surveys reaching the market are most likely to be the most significant in the perspective of the following days. Before the understanding between London and Brussels, neither the supporters nor the opponents gained the advantage. However, if it appears that the votes are divided equally, or the concept of remaining in the EU has only a few advantage points, it is possible that the GBP/USD may fall to the range of 1.35-1.37, which is its 30-year minimum.

Increasing chances for an agreement

Since this morning, we can observe a 2-3% increase on oil. This is mostly caused by the expanding consultations regarding an increase in oil supply, provided by its main producers. According to the Bloomberg information, Russia claims that these discussions should last until the 1st of March.

On the other hand, the Nigerian minister of oil claims that he supports establishing the maximum level of production at the current level. However, he claims at the same time that, “Iran and Iraq should have an option to regain its share of the market.” It seems that this should increase the likelihood of a durable agreement among the producers. This would significantly decrease a chance to test the recent minimums, and on the other hand, open the door to higher growths, especially in the second half of the year, when the demand will most likely match the supply.

Weak data from the euro zone

A better global sentiment, which is mainly related to the growths in the oil market, causes the EUR/USD to overvalue. Additionally, before noon we received the PMI readings from the euro zone, which were worse than expected. The German Manager's Index for industry, prepared by Markit, dropped to the level of 50.2 points, which is its 15-month minimum. Moreover, the employment in the industrial sector decreased for the first time for one-and-a-half years.

The index describing the future condition of the services and industrial sector for the entire euro zone was also weak. It dropped to its 13-month minimum, at the level of 52.7 points. In the data summary, the Chief Economist at Markit Chris Williamson, said that, “the disappointing PMI surveys significantly increase the chance for a more aggressive stimulation by the ECB in March.”

Zloty takes advantage of a better sentiment

Growths on the European floors and terminal contracts announce a higher opening of quotations in the USA, and also support the currencies from our region. The zloty is gaining approximately 0.01-0.02 PLN against the euro. A better condition of the zloty should also be a result of worse publications from the euro zone.

As Chris Williamson of Markit said, we can expect that the weaker PMI from the euro zone will increase the ECB actions in March. This fact should support the zloty against the euro, especially that it is most likely that the MPC will not change interest rates in the following meeting. Thus, we sustain our expectations that the EUR/PLN may go to the range of 4.30-4.35 already in March. The franc may also be cheaper by approximately 0.05 PLN, if the SNB manages to take the EUR/CHF above the level of 1.10.

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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