Daily analysis 30.09.2015

, author:

Marcin Lipka

Inflation data from the eurozone with no significant impact on the EUR/USD. The IMF report on companies debt and IIF data regarding capital outflow from the EM economies. The zloty remains weak despite a capital market rebound.

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

  • 14.00: Preliminary inflation reading from Poland for September (survey: minus 0.7% y/y and minus 0.1% m/m).
  • 14.15: ADP reading from the US jobs market (survey: +190k).
  • 15.45: Chicago PMI for September (survey: 53 points).
  • Tomorrow at 09.00: Manufacturing PMI reading from Poland (survey: 52.3 points).

No significant impact from the inflation data

In the afternoon analysis we suggested that even if the inflation data from the euro turns out to be slightly below zero it should not markedly affect the euro. The market should be focused more on core inflation. At this moment, it should better draw the picture regarding the overall price changes.

According to the Eurostat the core inflation remained at 0.9% y/y in September. It should not bring Mario Draghi to announce longer or larger QE during the incoming central bank meeting especially that in the last speech he suggested to wait for more data before any decision could be taken.

It does not rule out that the QE may be extended beyond September 2016, but the decision can be taken in several months. Additionally, if the situation stabilizes opinions about higher monetary stimulus may get muted. It would keep the euro close to the current levels of its main trading partners.

Emerging markets in focus

Yesterday two interesting reports were published on emerging market (EM) economies. The first one is a document prepared by the IMF on companies debt and the second is an estimation on capital outflow from the Institute of International Finance (IIF). The IMF notes that between 2007 and 2014 corporate debt to the GDP rose in China, Turkey and Brazil by around 25, 22 and 15 percentage points respectively

The IMF also noted that a low interest rate environment caused that the financial conditions were more favourable for firms despite their balance sheets being weaker. As a result, according to the IMF “these developments make emerging markets economies more vulnerable to a rise in interest rates, dollar appreciation and increase in global risk aversion”. The Fund especially warns about countries which export commodities.

In the report there is almost no news about Poland. That is good information. From the charts published in the IMF report we can conclude that Polish corporate debt to the GDP actually dropped by a few percentage points. Additionally, in 2014 the IMF report about Poland the nonfinancial sector debt denominated in US dollars was only 9%. The remaining part is in euros (56%) and the PLN (34%).

According to the IIF report, in Q3 of 2015 even 40 billion USD might have left the EM economies, which is the largest capital outflow since Q4 of 2008 when foreign investors withdrew over 100 billion USD. The IIF data also showed that between 2010-2014 the average inflow of capital to the EM was around 22 billion USD each quarter. On one hand, the outflow is not that significant taking into account the previous inflows. On the other hand, if the situation does not improve, the withdrawal of capital can speed up which would put additional pressure on the most vulnerable currencies like the Brazilian real, South African rand or Turkish lira.

The foreign market in a few sentences

Currency market participants should observe the ADP data today. The reading should be close to the consensus as the positive situation on the jobs market remains in place. If the data stays in line with expectations around 190k, the positive sentiment should remain on the market and can push the EUR/USD below 1.1200 by the end of the US session.

The zloty remains under pressure

There is no appetite for some major improvement on the Polish currency. However, if today's session in the US turns out to be solid then the EUR/PLN may fall back below the 4.23 mark.

It is also worth remembering about the PMI reading scheduled for tomorrow. The economists' consensus assumes its rebound from 51.1 points to 52.3 points. It is still not much especially that since the beginning of the year most readings were around 54 points. Taking into account the most recent German data the Thursday's reading should easily meet the consensus and the August fall may be regarded as a one-time-event.

However, if the publication remains at low levels or falls below the 50 points mark then the pressure on the zloty might even push the EUR/PLN above the 4.25 level.

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

Range EUR/USD 1.1150-1.1250 1.1250-1.1350 1.1050-1.1150
Range EUR/PLN 4.2200-4.2600 4.2200-4.2600 4.2200-4.2600
Range USD/PLN 3.7700-3.8100 3.7400-3.7800 3.8000-3.8400
Range CHF/PLN 3.8600-3.9000 3.8600-3.9000 3.8600-3.9000

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

Range GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Range GBP/PLN 5.7400-5.7800 5.7200-5.7600 5.7600-5.8000

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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