Daily analysis 30.09.2016

, author:

Marcin Lipka

Overvalue of the European banks caused a clear increase of global risk aversion. Relatively positive data from the United Kingdom supports the pound. An important PCE inflation reading from the USA. The zloty is under clear pressure of external situations. The EUR/PLN is above the 4.30 level.

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

  • 14.00: CPI inflation from Poland (estimations: positive 0.2% m/m; negative 0.4% y/y).
  • 14.30: Incomes and expenses of Americans (estimations: positive 0.2% m/m and positive 0.1% m/m, respectively).
  • 14.00: PCE inflation from the USA (estimations: positive 0.9% y/y; base case positive 1.7% y/y).
  • 15.45: Chicago PMI index (estimations: 52 points).

Increase of risk aversion

There has been a clear increase of risk aversion in the European market this morning. The main element that caused sales in the stock markets was an overvalue of the bank sector shares within the euro zone. The Euro Stoxx bank index lost more than 4% in comparison to the closing yesterday.

Even though today’s overvalue was mainly caused by negative information from Germany, it’s worth noticing that the bank sector has been weak for a long time. The previously mentioned index is near its multi-year minimum which was reached at the beginning of 2009 (shortly after the global recession), as well as during mid-2012 (a decisive time for the entire euro zone).

We could also observe an increased nervousness in the debt market and the currency market. The profitability of the German bonds went down clearly and the EUR/USD decreased by 40-50 pbs. The situation wasn’t improved even by a lower base case inflation reading. Instead of increasing to 0.9% y/y, it remained at the level of 0.8% y/y. This may be a good argument for the ECB to extend quantitative easing.

Positive information from the United Kingdom

Last night we received the GFK data regarding consumer sentiment in the United Kingdom. It was clearly better than expected (negative 1 point vs negative 5 points). Expectations regarding the entire British economy increased significantly as well. The British index was at the level of negative 33 points shortly after the referendum. Currently, it’s risen to the level of negative 9 points, which is its best result since December 2015.

Additionally, a revision of the GDP data from the second quarter from 0.6 q/q to 0.7% q/q should be considered as positive as well. This is especially considering that it has been caused by an increase in an investment-related component. We should also appreciate the fact of a clear revision of the current account deficit for the first quarter. At first, it was estimated at the level of negative 6.9% GDP level. Currently, it’s at the level of negative 5.7% GDP.

However, the deficit reduction mainly results from a lower negative balance of primary income, rather than from an improvement in trade balance (in this case, the deficit was exceeding 7% of the GDP in the second quarter.) Nevertheless, the foreign trade data for the forthcoming months will be the most significant for the entire current account. If a lower exchange rate of the pound does not decrease a negative trade balance and does not increase a positive services balance, investors will receive another reason to sell the pound. For the time being, today’s data needs to be considered as positive. It also reduces a potential depreciation pressure on the GBP caused by the future decisions from the Bank of England, or the forthcoming negotiations between Brussels and London regarding Brexit.

Inflation data from USA

The market received the base case CPI inflation data from the USA for August in mid-September. Its increase was higher than expected (2.3% y/y vs 2.2% y/y) and it strengthened the dollar. At that time, we wrote that this was a result of an increase in medical services by 0.9% m/m and 5.1% y/y. Economists started quickly speculating that taking into consideration a higher contribution of medical costs in the PCE inflation will result in an increase as well.

Today, we will find out whether this is true. Despite that health-related costs have a larger contribution in the PCE rather than in the CPI, the PCE also includes expenses of other institutions (of employers in favor of employees, for example). In this case, the growth was not necessarily as large. Therefore, it’s possible that the base case PCE inflation may be below the consensus of 1.7 y/y. This would be a negative signal for the USA, especially if the risk aversion decreases in the coming days.

Visible wear-off of zloty

A clear increase in the global risk aversion has quickly translated to the zloty’s wear-off. The EUR/PLN is moving near the area of 4.3150 and there were moments when the franc was near 4.00, only to decrease to the 3.96 level later. The dollar and the pound are also clearly more expensive than they were yesterday.

The negative condition of the Polish currency is basically a result of an external situation. The PLN/HUF is basically at an unchanged level. The lira is also weaker, but in this case the wear-off is a result of the President Erdogan extending the state of emergency.

Taking into consideration a clear deterioration of the global sentiment, it will be difficult for the EUR/PLN to return to a level above 4.30. The PMI reading from Poland on Monday will be significant regarding the macro data. Recently, this index increased from 50.3 points to 51.5 points. If its value returns near the area of 50 points (which is not our base case scenario), the zloty could interpret this negatively and its depreciation would extend in the short-term.


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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