Daily analysis 22.04.2014

, author:

Marcin Lipka

No major macro data puts the Ukrainian issues in the headlines again. The EUR/USD is close to 1.38 level. High demand for the peripheral debt from foreign investors. Wednesday's data should bring some freshness to the market. The zloty after the holiday's stabilization depreciated sightly in the morning.

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

  • 16.00 CET: New home sales from the US (March data, seasonally adjusted annualized data; survey 455k).

Ukraine. Debt. The data

In eyes of global players, the situation in Ukraine is getting more political and less threatening to the world's economic growth. It can be confirmed mainly by the condition of global equity indexes (US. S&P500 is again just shy from all-time-high level) and fairly stable behavior of EM currencies. Even the Russian ruble, which has been the most sensitive to any reports from Ukraine recently, is paying less and less attention to the revolution topic. However, until the 25th of May when election prepared by the Kiev authorities is held, we cannot expect that all data from the East will be ignored by the participants.

In the past few weeks I have mentioned several times a bullish peripheral debt in Europe (for example 5-year Spanish government yields matched the yields of treasuries issued by the US). Today's Financial Times cites Barcalys reports that since early 2012 foreign investors more than doubled holdings of debt issues by Madrid (from 70 billion 180 billion). A similar situation was observed in Italy. Last week in an interview for Bloomberg the chief Italian debt agency Maria Cannata claimed that the presence of US investors in Italian debt is “very strong” and that Scandinavians are “important”. The main reason luring foreigners into peripheral bonds is a significant reduction of default probability (ECB factors) and increasing odds that the central bank will cut rates in coming months or begin the quantitative operation. The capital inflow to the Euro area is one of the main reasons (besides increasing current account surplus) for the common currency to be pretty solid.

The PMI data reported in early Wednesday Chinese will be the first major economic figure this week. The Bloomberg consensus is set at 48.3 and such low reading can be a pretty conservative estimate, especially taking in account quite strong retail sales and industrial production data published last week. However, we will need to have at least 0.5 point deviation from the mean to expect any reaction on the EUR/USD. It is also worth to remember about manufacturing and services PMI's from major European economies (especially from France where the March data was pretty strong). Today. however, the EUR/USD should stay around 1.3800.

Slightly weaker

Despite that some disturbing news from Ukraine were announced during the holidays, market participants on PLN didn't want to make nervous moves during Monday's light trading. The zloty lost about a fourth of percent as soon as more feeds came in the morning. However, similarly to the issues on the global markets, the Ukrainian situation should have limited impact on the zloty in the following days.

On Tuesday we still may have a pretty lazy trading on the Polish currency. We can expect more volatility tomorrow, when the PMI's are published and on Thursday with the local retail sales hitting the wires. In the coming 24 hours we will stay around current levels and the zloty should finish the day at 4.19 for the Euro and 3.43 per the Swiss franc.

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

Range EUR/USD 1.3750-1.3850 1.3850-1.3950 1.3650-1.3750
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0100-3.0500 2.9900-3.0300 3.0400-3.0800
Range CHF/PLN 3.4200-3.4600 3.4200-3.4600 3.4200-3.4600

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.6550-1.6650 1.6650-1.6750 1.6450-1.6550
Range GBP/PLN 5.0300-5.0700 5.0500-5.0900 5.0100-5.0500

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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