Daily analysis 23.12.2015

, author:

Marcin Lipka

Last important data from the USA before the end of the year. How will the Fed personnel change in 2016, and can it have an impact on the path of the American monetary tightening? Fitch Ratings about a possible danger for the Polish rating. The zloty remains relatively stable.

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

  • 14.30: Incomes and expenses of consumers in the USA (estimations: respectively +0.2% m/m and +0.3% m/m).
  • 14.30: The PCE inflation for November (estimations: +0.1 m/m and +0.4 y/y; the base case +0.1% m/m and +1.3% y/y).
  • 14.30: Orders for durable goods from the USA (estimations: minus 0.6% m/m; with exclusion of transport 0.0% m/m).
  • 16.00: Sale of new houses in November in the USA (estimations: 505k).

A series of macro data

This is the last series of this year's macroeconomic data which could have a clear impact on the currency market, or cause changes in perspective of the American monetary tightening pace. The publication regarding the PCE inflation from the USA should be most important.

This especially concerns the base case inflation, which is disturbed by a decrease in prices of raw materials, and the stronger American dollar to a significantly smaller degree. Economists' publications published by he Bloomberg agency show that the median of reading is on the level of 1.3% y/y. It is despite the fact that 10 our of 25 surveyed estimated that the base case inflation may increase to the level of 1.4% y/y. A higher reading is possible, especially that the CPI inflation without food and fuel in November was 2.0% y/y.

Other publications should meet with a smaller interest. That is unless inflation is close to estimations, and orders for durable goods, sale of new houses, or expenses/incomes of the consumers are significantly far from estimations.

Changes in the Fed

Just as always, the new year brings us a change in the Federal Reserve personnel of members who have the right to make direct decisions regarding interest rates. Changes do not concern five governors and chairman of the Fed department in New York. Since 2016 Loretta Mester, Esther George, Eric Rosengren, and James Bullard will have a real impact on the FOMC monetary policy.

Until now, two out of four rotating members could be considered as neutral (Lockhart, Williams), one as very dovish (Evans), and one as hawkish (Lacker). Currently these proportions changed. Out of four members presented in the above paragraph, only Rosengren is dovish. Rest of them can be considered as hawkish. This means that they want to raise interest rates at the same, or even faster pace than the consensus suggests.

Of course there is a question, what impact can this matter have on the path of monetary tightening? As usually, the greater attention is focused on the governors, especially the Fed chairman and vice-chairman, and the chief of the Federal Reserve department in New York. They also remain relatively dovish. Also the will to raise interest rates of governors Brainard and Tarullo, is even smaller than of Yellen and Fisher.

However, if the situation is less unambiguous (for example, mixed data from the American economy), the hawkish representatives of the Fed regional departments could contribute to an increase in interest rates. Thus, this may be a supportive element for the American currency, which is not yet appriciated.

Few words about the foreign market

Readings regarding inflation may have the biggest impact out of today's macroeconomic data. If the base case PCE is on the level of 1.4% or higher, there is a bigger chance to see a stronger dollar. Especially in the scenario if other publications are coherent with expectations. It is possible that this could push the EUR/USD even to the middle areas of 1.08.

Fitch about fiscal policy

Yesterday Fitch published a press announcement on its website. It estimates the perspectives of fiscal policy, and indicates dangers regarding the Polish loan credibility. The rating agency writes that “introducing unconventional and unpredictable policy is a risk for the investment atmosphere”. It additionally estimates that in 2015 the Polish GDP will increase by 3.5% y/y, inflation will be 1.2% y/y, and the deficit in sector of public finance is 3.0% of the GDP. The official estimations of the government assume an increase in the GDP on the level of +3.8% y/y, inflation 1.7%, and deficit in public finance to the GDP is 2.8%.

Fitch also takes note of the fact that “a significant easing of of the fiscal attitude can create a pressure on the Polish stable rating, especially if it is accompanied by a slowdown of an economic growth”.

The currency market, as well as the treasury bonds, received the Fitch publication relatively neutral. A part of the matters included in the report, is probably already calculated in the currency rates. Additionally, investors are currently more focused on the monetary policy, because it can be modified quite soon. However, if there really is an economic slowdown, the fiscal matters may return quite quickly. They can visibly wear off the zloty, and cause an increase in profitability of the national debt instruments.

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

Range EUR/USD 1.0850-1.0950 1.0750-1.0850 1.0950-1.1050
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.8800-3.9200 3.9200-3.9600 3.8400-3.8800
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.4900

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

Range GBP/USD 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150
Range GBP/PLN 5.8000-5.8400 5.7600-5.8000 5.8400-5.8800

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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