Daily analysis 22.05.2015

, author:

Marcin Lipka

An important survey of the “Primary Dealers”, especially in the context of the dovish “minutes” from Wednesday. A slight improvement of sentiments regarding Greece, and the Ifo coherent with expectations. The impact of the presidential elections on the zloty should be small and temporary.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

  • 14.30: The CPI inflation from the USA (estimations: +0.1% m/m; excluding fuel and food +0.2% m/m and +1.7% y/y).
  • 19.00: Janet Yellen's speech regarding the future condition of the American economy.

The “Primary Dealers” survey

Yesterday, we described in detail why the Federal Reserve summit in April can be received as dovish. Today, it is worth presenting the “Primary Dealers” surveys. They are the surveys of the biggest investment banks, which directly participate in transactions with the Fed.

Two weeks before the summit, the Fed asked the “Primary Dealers” what is their view on crucial matters related to the monetary policy. The results are published three weeks after the meetings of the American monetary authorities, but the conclusions regarding the future monetary policy are still important despite this delay.

Around the middle of April the biggest institutions participating in the turnovers of debt instruments expected the first increase of interest rates to occur in September (37%). Additionally, 35% of the respondents expected it to occur in December or later.

One should also consider the fact that the recent survey was answered 5 weeks ago. The GDP reading which was worse than the expectations, or the series of weaker industrial production and retail sales data for April, were unknown back then. It is likely that from this moment on the expectations have moved more into the future, or at least remained on the previous level. Thus, a sooner increase is very unlikely.

This makes one seriously consider a slow moving base moment of monetary policy's normalisation to December. It further translates to bigger chances of wearing the American currency off, and even going above the recent peaks on the EUR/USD. That is of course, if we will not see a clear improvement of the macro data from the other side of the ocean, or a dramatic deterioration of the situation regarding Greece.

Riga and the Ifo

According to expectations, the meeting of Merkel, Hollande and Tsipras in Riga regarding the matter of aid for Greece did not finish with a breakthrough. However, there were some optimistic comments of the European leaders regarding this matter. Thus, the market received it as getting closer to compromise rather than going further from it.

The common currency was also slightly supported by the data from Germany. The Ifo index describing the sentiments of the German entrepreneurs remains practically unchanged, despite the expected slight decrease. It slightly improves the sentiments after yesterday's PMI data, which were worse than expectations.

As a result, the neutral news from the eurozone, the dovish “minutes”, and also the perspective of moving the expectations regarding the first interest rates increase to the future have caused the EUR/USD to go above 1.1150.

Few words about the foreign market

Today, the market will mainly analyze the evening's appearance of Janet Yellen (at 19.00 CET). It is also worth noticing the data about inflation from the USA. Although it will be difficult for a surprise regarding the matter of consumers' prices. Thus, if the Fed's chairwoman confirm increasingly dovish expectations of the market, and the concern of slower than expected economic increase, we should expect the breaking of recent peaks on the EUR/USD in the area of 1.1450, even before the “payrolls” reading from May.

The zloty is still weak

The national currency remains weak in its relation to the euro. Considering the weak retail sales and industrial production publications from the middle of the week and quotations of the forint which are usually coherent with the zloty, one can estimate that the surprising course of presidential elections is responsible for the Polish currency's wear off by approximately 0.02 PLN.

If Andrzej Duda wins the elections, we should expect a further increase in the EUR/PLN, also worth 0.02 PLN. However, this effect will be temporary and will probably disappear due to the data from the world, negotiations regarding Greece, or the discussion about the increase of interest rates on the other side of the ocean.

On the other hand, if Bronisław Komorowski would be victorious, the EUR/PLN will probably drop by approximately 0.02 PLN. However, just as in the case of Andrzej Duda's victory, the market would quickly return to its stable rhythm. We will probably observe many more fluctuations before the parliamentary elections and right after them. Especially in the case of not having a possibility to create a majority government. This “game” however, will begin in a few months from now.

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

Range EUR/USD 1.1050-1.1150 1.0950-1.1050 1.1150-1.1250
Range EUR/PLN 4.0800-4.1200 4.0800-4.1200 4.0800-4.1200
Range USD/PLN 3.6600-3.7100 3.7000-3.7400 3.6300-3.6700
Range CHF/PLN 3.9200-3.9600 3.9200-3.9600 3.9200-3.9600

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

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 5.6800-5.7200 5.6400-5.6800 5.7200-5.7600

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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