Market Summary by AFORTI: MPC meeting, currencies and China's problems
The first full week of September opens quite calmly due to weakened activity in the EUR/USD market. The United States had Labor Day yesterday (September 04, 2023). This does not mean that Europe will remain completely inactive, but certainly the volumes on this currency pair will be significantly lower.
Looking at our market, we can see a great expectation for the next data, which is certainly under the influence of the upcoming elections and decisions made by voters.
From our point of view, the awaited information is whether the NBP and the Monetary Policy Council will decide to cut interest rates? In our opinion, yes - by 25 basis points. At the same time, one should be aware that the cause is not the greatly decreasing inflation, but political considerations. Let us remind you that the time before the elections is an intense election campaign, and the sympathies of the President of the NBP are clearly on the side of the ruling party, and such a move reducing burdens mainly on borrowers may be a very important PR element for those in power. At the same time, it should be realized that such a move would have an overtone based strictly on politics, and not on the foundations of the economy.
At this point, it should be emphasized that the inflation target is 2.5% - so the comparison to the current value of 10.1% is extremely unfavorable. In addition, the earlier increase in prices caused us to move from the starting point to calculating the current inflation from the level of increased prices (the so-called base effect).
What will be the final decision? We will find out after the MPC meeting starting today.
Looking at the valuation of interest rate instruments, it can be seen that the expectations for declines are quite high, and the 3-month WIBOR may go down to around 5% in the next 6 months, and further declines in the annual perspective may deepen by another 0.5 point. Looking at the current levels of approx. 6.6%, we are talking about a move down by 1.5% (nominally).
How does this situation translate into foreign exchange rates against PLN?
EUR/PLN, which was mentioned in the previous report as creating a certain wedge, did not break out significantly in either direction - creating a corridor and a sideways trend - consolidating around the level of EUR/PLN 4.4700 - with a deviation of one grosz up and down . Of course, we are talking about levels for interbank markets and values based on averages. Trading deviations may exceed these levels. It should be emphasized that we look at the markets through the prism of the trend, not individual transactions.
Looking at USD/PLN, we have a slightly more complex situation, which translates into EUR/USD quotations. Here, the resistance levels around EUR/USD 4.1460 and 4.1530 are blocking the upside with resistance at the bottom of EUR/USD 4.0800. To know the direction and risk forecasting the future - you must definitely look at the situation on EUR / USD, because this pair strongly determines how much the US dollar is traded in Poland. However, looking at the current direction of the course, the upper resistance level may be reached again in the near future.
On EUR/USD, we wrote last week about a strong support level of 1.0800, which actually bravely defended itself for a few days, but finally there was a breakout and we went down to 1.0730, only to then move sharply towards 1.0940. Falling again and... we're back around EUR/USD 1.0800, which attracts EUR/USD like a magnet. In our opinion, a move below 1.0800 and then 1.0730 is less likely than moving higher, even below EUR/USD 1.1000.
In Asian markets, we have quite opposite signals. While the industry related to electronics and e-commerce is doing very well, construction investments are clearly slowing down, and the largest developers are subject to financial pressure and rising costs of financing investments - which translates into their difficult financial situation. The largest of them, Evergrande - recorded a loss of USD 14.5 billion - in 2022, and 2023 will mean final bankruptcy.
Finally, very briefly about the situation on the Polish stock exchange. As we mentioned a week ago - the 2,000 level has put up strong resistance, and investors' return to the stock market after the holiday period may involve an attempt to attack the 2,200 level again. However, as you can see, the forces after the holidays are too weak for this and the WIG20 has dug in around 2.050. There is also no clear optimism on the WIG and the level of 69,000 effectively defends itself against increases.
Simon Janczak
Director of the Treasury Department
Aforti Exchange S.A