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Daily analysis 25.08.2016

, author:

Marcin Lipka

The German Ifo index appeared to be worse than expected. Janet Yellen will be joined by more FOMC representatives in Jackson Hole. The zloty remains stable against the majority of the main currencies.

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

  • 14.30: Orders for durable goods from the USA (estimations: positive 3.4% m/m; excluding transport positive 0.4% m/m).
  • 14.30: Weekly jobless claims from the USA (estimations: 265k).
  • 15.45: Initial reading of the PMI services index from the USA (estimations: 51.8 points).

Worse Ifo index

This morning's German Ifo index results were a negative information. The index is one of the main accelerating indexes for the German economy.

The Ifo went down by 2.1 points to the level of 106.2 points, against the 108.5 estimations. The changes are not large, although the index's value is now at its lowest level since February. The description of particular components by the Institute's president, Clemens Fuest, does not look optimistic as well.

Fuest states that, “the industrial companies are less satisfied with the current business situation.” Fuest also takes note that the estimation component deteriorated and went below its long-term average. Moreover, the volume of new orders decreased as well.

The wholesale subindex, as well as the retail sales subindex are also much worse than they were in past months. Basically, only the building sector remains very strong and its value is near a record level.

The current question is, is this weaker data a one-time effect, or is it the beginning of a long-term trend? An unfavorable factor is certainly a decline in basically every basic sector of the economy, as well as a decrease in component that describes the current situation and in expectations for the forthcoming six months. On the other hand, the PMI index doesn't show a clear slowdown. Therefore, we need to wait for new readings, in order to come to more credible conclusions.

Not only Yellen

For the past few days, we have been focusing on hypothetical topics that may appear during Janet Yellen's testimony on Friday. However, we need to emphasize that despite Yellen's opinion will be the main event tomorrow, more FOMC representatives will present their views as well.

According to information from the Bloomberg television, these representatives are James Bullard, Jerome Powell, Robert Kaplan and Dennis Lockhart. During the past few weeks, the three firstly mentioned have been speaking of many reasons for the level of neutral interest rates (r*) to be lower than the current estimations.

Bullard took note in his testimonies that interest rates should not increase by more than 0.25 percentage points until the end of 2018. Powell's article that was published in the Financial Times on the 7th of August, needs to be considered as dovish as well. The Federal Reserve governor wrote about very gradual rate hikes, as well as the fact that r* may be lower than the FOMC expects.

Kaplan (he will have the right to vote in 2017) also spoke of a lower level of r* during his appearance in Beijing at the beginning of August. The reason for this are the aging societies of the developed countries, as well as a lower level of productivity. Moreover, he focused on a necessity of a larger involvement from the fiscal policy, in order to revive the economic situation.

Thus, it is not only Janet Yellen, who may give us a relatively dovish long-term message. Statements from the other Federal Reserve members may also cause an increase in volatility, especially considering that the market is quite disturbed. This will most likely not be favorable for the USD.

Stabilization of PLN

The trade on the EUR/PLN has been very stable, judging on this currency pair's quotations this week. A definitive majority of transactions has been made within the range of 4.30-4.31. This situation is unlikely to change during the forthcoming hours. We can expect larger moves no sooner than on Friday.

Minutes from the previous MPC meeting will be published this afternoon. However, it's worth noting that this meeting was held at the beginning of July. Therefore, a lot of these information has expired by now. However, it's still worth focusing on those fragments of the minutes that may suggest a change in the monetary policy in case of a large economic slowdown. The risk that this publication will clearly change the PLN evaluation, remains small.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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