While Poland prepares for a long weekend, globally, investors are gearing up for a turbulent period. The calm on Monday is deceptive and stems from uncertainty that surrounds the market from every direction.
Storm outside, Poles at the Grill
The opening on Monday’s markets seems surprisingly calm. Volatility remains highly limited, but investors are far from a holiday mood. Today’s lack of definite movements results rather from too many variables lurking on the horizon. Interestingly, some of these factors can impact the market on Thursday and Friday, an important point from the perspective of the zloty since Poles will be in weekend mode due to the August 15 holiday. This means lower liquidity, which makes our currency more susceptible to stronger fluctuations. From this perspective, today’s strengthening of the zloty is noteworthy. The Euro momentarily even approached 4.30 zlotys, although it later regained almost a grosz. A similar scenario took place with the dollar, which dropped to 3.94 zlotys. On Wednesday we await important macroeconomic readings – a full report on inflation. A quick estimate indicated a rebound to 4.2%. The GDP dynamics reading, expected to be 2.8% YoY, will also be notable. This is significant as voices from the RPP suggest a possibility of faster interest rate cuts if the economy fails to sufficiently accelerate by year-end.
The Fate of the September Cut Hangs in the Balance
Interestingly, both of these readings may be overlooked by investors as in the broader perspective enough is happening for the zloty to be more subject to global rather than local moods. First and foremost, we have a week packed with readings from the States, with the most crucial one being price dynamics. On Tuesday we will get a warm-up in the form of producer inflation, followed by the main course of the week on Wednesday. Analysts expect a confirmation of the recent drop to the 3% level. Interestingly, according to markets, this would free up the possibility of a stronger FED reaction, even though voices from Powell’s surroundings recently pointed out the challenge of the persistence of this threshold. In the case of a negative surprise (higher reading), we will likely observe increased volatility in the markets. Surprisingly, Thursday’s data could also be crucial. We will receive new applications for unemployment benefits, which have lately had great potential to stir the markets, along with industrial production and, even more importantly, retail sales. There has been a lot of speculation that the American consumer has used up the post-Covid cushion and now the FED’s restrictive policy will have an even stronger impact on the real economy.
Geopolitics is on Fire
However, investors are not only worried about readings from the States. In the coming days (or even hours), we expect heated situations in both major conflicts. After Ukrainians decided to launch an offensive in Russian territory last week, analysts expect a strong reaction from Putin. We got a sample yesterday when images were shown of a burning nuclear power plant in Zaporizhia. It turned out that it was a Russian provocation, who set fire to tires. There is high speculation of a possible missile attack on Kiev, especially on decision-making facilities like parliament. The risk of escalation of conflict has never been this high and the market clearly perceives it. The second hotspot is the Iran-Israel conflict. The world is fearful of the scale of Persian retaliation. So much so that Americans decided to move additional aircraft carriers and submarines to the volatile region. This uncertainty is reflected in the oil market, where real increases have been seen recently. It’s important to remember that higher oil prices will translate into inflation expectations, and therefore uncertainty about upcoming monetary policy easing.
Author: Krzysztof Adamczak, currency analyst Walutomat.pl
Source: https://ceo.com.pl/inflacja-wojna-i-ryzyko-dla-zlotego-14771
