Daily analysis 28.01.2014

, author:

Marcin Lipka

The lira rebounded 5% from the bottom after the central bank special meeting announcement. The base case scenario for the Federal Reserve is asset purchase reduction by 10 billion. Argentinian tricks. Stronger lira initiated a rebound on the zloty.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • 14.30 CET: Durable goods orders from the US (survey: +1.6% m/m and +0.7% excluding transportation.
  • 23.00 CET: Turkish central bank statement.

The data, Fed, Turkey and Argentina

Weaker-than-expected data from the US (new home sales in December was at 414k while the survey showed the number around 450k) supported some opinions that the Federal Reserve can pause the tapering at the Wednesday's meeting or proceed a smaller than expected asset purchase cut (5 billion instead of 10). However, noting that the US economy has been expanding at faster pace and the recent FOMC members statement hasn't suggested any changes (even after lower-than-estimated NFP report), the base case scenario is a $10 billion cut to its QE program.

Yesterday around midday CET there was a significant rebound on the lira. The Turkish currency soared around 5% from the bottom, after the central bank announcement that it will held a special meeting at 23.00 CET on Tuesday. Investors expect that the TCMB will significantly increase the interest rates. In an interesting article prepared by Yeliz Candemir (“Turkey's Midnight Mistery”) and published at “MoneyBeat” website analysts and economists estimate that the reference rate will rise around 300-350bps to around 10.5-11% (from 7.75%). To calm the situation the TCMB will have to be convincing. “An ambiguous and tentative policy signal could undermine confidence and leave the lira vulnerable. Economists do not expect any capital controls (there were some rumors on the issue).

Bloomberg reported today that Argentinians who earn an equivalent of 900 USD, will be allowed to buy 2k USD at the central bank rate (8 peso per the “greenback”). They will, however, not be able to sell the currency (for example on the black market and receive instantly a hefty profit – peso is traded there at 10-11), but they will have to deposit the money into a bank account. If they fail to do this a 20% tax is suppose to be collected. Moreover, the economy mnister Mxel Kicillof (in response to the rising prices after the devaluation was announced last week) said that retailers “always find a good reason to raise prices; a change in the exchange rate, it's humid outside, any excuse”. They lie and steal”.

Summarizing, we will have to wait for the Turkish central bank meeting and Wednesday's Fed statement. Until the decisions are clear I don't expect any major moves either on EM currencies or on the dollar.

Stronger zloty

On Monday the EUR/PLN pair topped 4.23 – fourth month high (in line with record low valuations of the Turkish lira). After the announcement from the TCMB the Polish currency started to rebound and we ended the day around 4.20 per the Euro. Further slide of the USD/TRY pair caused that we fell under 4.19 level at the beginning of the European session. An improving sentiment was also visible on other EM currencies – such as South African rand and Hungarian forint. It is, however, worth to note that the zloty almost recovered all the losses. It confirms that the PLN is a core EM currency and can be positioned between the Mexican peso and South Korean won.

It is also worth to note the “Rzeczpospolita” daily newspaper interview (parts were published by PAP) with the MPC member professor Hausner. He confirmed previous opinions that the March inflation report can give a clear signal whether it is time to change the monetary policy.

Summarizing the zloty has been surprising with its relative strength, however, we still have to be careful regarding the data incoming from Turkey. If the Ankara based central bank fails to meet the expectations we can even retest the recent highs (both at EUR/PLN and EUR/TRY).

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

Range EUR/USD 1.3550-1.3650 1.3650-1.3750 1.3450-1.3550
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.0600-3.0900 3.0300-3.0700 3.0800-3.1200
Range CHF/PLN 3.3800-3.4200 3.3800-3.4200 3.3800-3.4200

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.6450-1.6550 1.6450-1.6650 1.6350-1.6450
Range GBP/PLN 5.0100-5.0500 5.0300-5.0700 4.9900-5.0300

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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