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Daily analysis 26.07.2016

, author:

Marcin Lipka

One of the most hawkish members of the Bank of England suggested his support for the monetary stimulation in the interview with Financial Times. Anxieties over the Japanese fiscal policy becoming less aggressive strengthen the yen, as well as slightly deteriorate the global sentiment. The zloty slightly lost its value due to a minor increase in the risk aversion.

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

  • 15.00: Case-Shiller index of real estate prices in the USA (estimations: positive 5.6% y/y).
  • 16.00: Sale of new houses in the USA (estimations: 562k, annualized data).
  • 16.00: Conference Board consumers sentiments (estimations: 96 points).

Increasing chances for a deep stimulation from Bank of England

The Bank of England meeting two weeks ago has surprised many market participants. Despite anticipated monetary easing, the BoE left interest rates at unchanged level. This caused a clear strengthening of the pound, even though the central bank suggested a possibility of cutting interest rates, as well as activating other tools of the monetary policy on the next meeting.

However, a few macroeconomic reports appeared since then and some of the BoE members have spoken as well. One of them was Martin Weale. Last week, he suggested waiting for more significant signals from the economy, before making a decision about monetary easing.

However, in his today's interview with the Financial Times, Weale sound definitely more dovish than he did a few days ago. He claimed that, “The most recent PMI from the British economy (we wrote about it on Thursday as well as on Friday – author's footnote) was definitely worse than I previously expected.” He also added that, “the managers index is definitely the most significant short-term index that we have so far and I really feel that it is very significant for the decision that we will make next week.”

The Financial Times interview with Weale significantly increases the chances for quite an aggressive move from the BoE. The likelihood that interest rates will be decreased by more than 25 base case points is increasing as well. Moreover, it is possible that a program of cheap loans for enterprises will be activated as well. Extension of the QE is not the base case scenario for the time being. However, it is possible that this element will be widely discussed at the meeting on the 4th of August. The pound's reaction on the Financial Times interview was a depreciation. The GBP/USD went to the area of 1.3060, but later it returned above 1.31. However, regardless of the short-term reaction of the market, today's information is negative for the pound in a period of at least few months.

Lower anticipation for actions from Japan

The yen became stronger by approximately 1.5% against the dollar during the Asian session. There was also a deterioration of sentiments in the Tokyo stock market. This chilled the sentiment in Europe as well. The reason for these events was information from Nikkei, which was cited by Reuters among others. According to this information, the fiscal stimulation program may be worth approximately six billion yen (approximately 60 billion USD). However, it was previously speculated that the package's value will even be 20 trillion yen (200 billion USD). We wrote about it in yesterday's analysis.

The package consists of the monetary easing (we will know its details on Friday morning), as well as the fiscal easing (it will be announced next week) and it is a crucial element for the yen's condition. If the fiscal stimulation is significantly lower than expected and the central bank does not decide for a clear increase in the QE program, it will be possible for the USD/JPY to return to the 100 area. This would probably increase the global risk aversion, at least temporarily.

Zloty is slightly weaker

At noon, the zloty lost less than 0.01 PLN against the euro, in comparison to yesterday's closing. These changes are not strong. For the time being, we should not expect that they will quickly change into a visible increase in aversion towards the Polish currency, before the BoJ meeting on Friday.

Apart from the element of uncertainty regarding the Japanese monetary authorities, it is also worth focusing on the Fed meeting tomorrow. However, according to what we have wrote yesterday, we expect a relatively optimistic announcement in the economic context. However, it will not contain any specific suggestions that the FOMC is clearly closer to the monetary tightening. In our opinion, the Fed will convince the market gradually. This should reduce the risk of a negative impact on the PLN as well.


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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