Daily analysis 25.08.2015

, author:

Marcin Lipka

Lockhart was very cautious regarding the future decisions of the Federal Reserve. Strong dependence from export to China and the demand on raw materials is a basic danger for currencies. The zloty remains very stable on a nervous currency market.

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

  • 15.00: Change in prices of real estates according to S&P/CS in the USA (estimations: +5.1% y/y)
  • 15.45: Initial reading of the PMI for the American sector of services (estimations: 55.1)
  • 16.00: Sale of new houses from the USA (estimations: 510k)
  • 16.00: Index of consumers' trust from the USA (estimations: 93.4 points)

Situation calm down

Despite the fact that the stock market in Shanghai experienced another depreciation (this time over 7 percent), the situation on other floors calmed down. This only confirms the concept that decreases are not the main problem for the Chinese capital market. It is the fact that the authorities in Beijing find it more difficult to control every element of an increasingly open economy and to prevent the probable slowdown of China.

Currently the market is counting on the central bank to choose to decrease the rate which is obligatory for the banks and cut down interest rates. It is also possible that the government will decide to perform a certain fiscal stimulation. However, further devaluation of the renminbi will not be the scenario preferred by Beijing, because it was a significant reason for the recent commotion.

Yesterday evening we received a short statement from Dennis Lockhart. The representative of the Federal Reserve, who just last month suggested that he supports the idea of raising interest rates in September, was not willing to confirm this standpoint. He said, among others, that the situation is becoming complicated in the contexts of appreciation of the dollar, devaluation of the renminbi, and further depreciation of the price of oil. However, Lockhart sustained the general standpoint of the Fed regarding the beginning of monetary tightening by the end of this year.

It is also worth quoting yesterday's article by Lawrence Summers from “The Financial Times” in the context of monetary policy. The former secretary of the treasury and former candidate for the post of chairman of the Federal Reserve, presented arguments that should prevent the Fed from raising interest rates. He mentioned, among others, low inflation, now and in the future, and the negative effects of monetary tightening. They are bigger unemployment, higher evaluation of the dollar, and reduced competitiveness of the American producers on the global market. Summers also mentioned the weakening renminbi, and the currencies of other emerging markets, which depreciation can additionally decrease the level of inflation.

Of course, these arguments themselves are nothing unique. However, it is worth noting that Summers used to be rather a supporter of the hikes. Also, at the time when he was considered as the new chairman of the Federal Reserve, he seemed to be more hawkish than Janet Yellen.

Considering a change in the global situation, small but visible smoothing of Lockhart's standpoint, and also the clear movement on the market of debt instruments, one should think that the hikes in September are becoming less likely. At the same time, there is an increase in the chances for hikes in December. This should keep the American currency under pressure, and further increases in the EUR/USD are possible only in the context of further sales on the stock markets, and reverse of carry trade. Thus, currently it is not the base case scenario.

Few words about the foreign market

Today, there are only a few macroeconomic reports from the USA. The most significant will be those from the real estate market and the consumers’ condition. If they are relatively good, and the session in the USA opens on as solid positives as the futures contracts indicate, the EUR/USD will have difficulties in remaining in the area of 1.15. One can not even exclude it going below 1.14.

The zloty remains stable

A rebound on the basic capital markets causes the EUR/PLN to return to the range of 4.22-4.23. If the situation continues to stabilize and the EUR/USD keeps going to the limits of 1.12-1.13, the euro should cost approximately 4.20 by the end of the week.

It is also worth noticing the behaviour of the zloty to the Asian and Latin American currencies, since the day before the 3% devaluation of the renminbi. Since then, the zloty has gained 4% to the dollar. On the other hand, the Russian rouble lost 10% to the American currency. The situation of the Malaysian and Turkish currencies was not much better. They lost respectively 7 and 5 percent to the dollar. Other raw material currencies, or those directly dependant on China's condition, like the Brazilian real, South African rand, and Korean won, depreciated from 2 to 5 percent.

The chart presents the behaviour of currencies to the devaluation of the renminbi


  • Source: Bloomberg, own calculations.
  • The chart presents quotations of particular currencies since the day before the first devaluation of the renminbi. Currency rates are normalized to the value of 100 and the present rate of a given currency to the American dollar. Lines: white – the euro, yellow – the zloty, green – the Turkish lira, purple – the South African rand, red – the renminbi, dark orange - the Brazilian real, dark blue – the Malaysian ringgit, grey – the Korean won, bright blue – the Russain rouble, bright orange – the Indian rupee.

The coming hours should be relatively calm for the zloty. If the good condition of the American stock market keeps through the whole session, the end of today's quotations should be 4.21 per euro.

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

Range EUR/USD 1.1350-1.1450 1.1450-1.1550 1.1250-1.1350
Range EUR/PLN 4.2100-4.2500 4.2200-4.2600 4.2000-4.2400
Range USD/PLN 3.6600-3.7000 3.6400-3.6800 3.6800-3.7200
Range CHF/PLN 3.8900-3.9300 3.8900-3.9300 3.8900-3.9300

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

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.5850
Range GBP/PLN 5.8000-5.8400 5.8300-5.8700 5.7700-5.8100

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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