Market Summary by AFORTI: Decisions of the FED, ECB and Zloty Outlook
The last two weeks brought us some important news from the financial markets, which were discounted a bit earlier, so their impact on the markets was limited. The FED meeting on interest rates in the US ended with an increase in interest rates by 25 basis points, in line with the trend of fighting inflation above the expected target - below 2% p.a. Some analysts - including Aforti Exchange - believed that interest rates would not be raised, because inflation had been slowing down for some time, and too much cooling of the economy with high interest rates could cause too much slowdown.
Following the US market, the ECB also decided to raise interest rates by 25 basis points – staying within the consensus of market expectations. The EU vs. US situation is all the more complex as the inflation spread in Europe is quite wide, which reflects the problems of individual countries in their local markets.
An additional explanation is inflation in the service sector and wage growth, which remains high. As in the United States, in Europe the unemployment rate in the Eurozone is historically low, which encourages workers to demand higher wages, which in turn may accelerate price increases in the economy.
Looking at the Polish market in this context, we have a clearly holiday period, which is visible in smaller volumes flowing through the market. After breaking the level of 4.0000 on USD/PLN and reaching around 4.4000 on EUR/PLN, the zloty weakened and returned to levels 6-8 groszy higher, to finally consolidate around 4.0250 on USD/PLN and 4 .4250 to EUR/PLN. The zloty has support at around 4.4200 - and here rather a temporary support should be expected - if there was an attempt to break down. The upper levels in a very short period may open to the upper resistance at 4.4600-4.4650.
For the Polish market, information about the announcement of the election date by the President will certainly be important. This may not have an immediate effect on FX markets, but it will be a signal for the NBP, among others, regarding interest rates. While August is not a decision-making month at the Monetary Policy Council, we assess September and October as open for two cuts of 25 bps each. Although in our opinion there is no reason to cut interest rates too quickly, we will probably observe the relationship between politics and the economy.
On the other hand, according to opinion polls, the elections may bring important political changes, where a strong entry of the opposition parties may bring expectations of mobilization of funds from the KP and a quick inflow of large sums in EUR. This will of course be a strong signal for zloty appreciation.
Looking at the current week, we do not have any major data that may significantly affect the currency market - so we focus on the current account, which may rather cause short-term exchange rate corrections, but without going beyond the trend and current consolidation.
The capital markets in Poland also got some holiday breathlessness. The WIG20 has no strength to break through the 2,200 level, while the WIG, after breaking 72,000, also headed down towards 70,000. It means that risk appetite has slowed down a bit and investors will probably return to the capital markets closer to the end of the month.
Looking at the most important foreign indices - the German Dax Index went below the barrier of 16,000 points. Last week there was a strong sell-off in the market and the index dropped from around 16500 (ATH). The lower levels to watch are 15735 and 15625. This is a logical consequence of the German economy struggling with inflation and worse industrial production data.
As for the US market, the relative strength of the Dow Jones index against the S&P and NQ is noticeable in the perspective of the passing week. Whether this is the beginning of the upcoming changes on the market or the current bull market will continue, only time will tell.
Szymon Jańczak
Director of the Treasury Department
AFORTI Exchange S.A.