Summary

Last week could have been very good for the WSE. Unfortunately the situation was complicated by the exacerbation of the Ukrainian conflict, where Russian troops occupied areas near the Sea of Azov. The President of Ukraine called it an open aggression. Indices tumbled, especially indices fell sharply at Książęca, where the WIG20 fell that day by almost 2%. Correction of technical resistance level of 2,485 points was expected. Maintaining the level of 2400 points is a positive aspect. Medium-sized companies - the WIG50 decreased by 2.1%. Small caps were the best performers, prices were reduced by 1.6%, however most of that lost was recovered the next day. Over the weekend there was no agreement achieved in Ukraine as Russia does not admit to be a participant in the conflict. All scenarios, including war, are still open. Lack of escalation over the weekend can be sort of a relief for investors.

In Europe, the response to the fiery battles was not as strong as it was in Poland. There were two issues justifying a strong sell-off on the Warsaw Stock Exchange. Firstly in the previous two weeks indices grew strongly and secondly Poland is geographically and politically close to the conflict. From the political perspective the ruling party – PO needs to prepare to the new situation. Current prime minister Donald Tusk will take the position of head of the European Council in December. This week he will indicate a successor and probably will also give up the leadership of the party. There is a considerable threat that PO may have trouble maintaining power in the country.

This week will be certainly interesting for the markets. The monetary policy will be determined by the MPC and ECB. Especially polish Council has a lot of arguments for the rate cut. With this move already priced in by the FRA market, the meeting will be very interesting as the distribution of votes for and against may be similar, with a decisive vote of the President Belka. On the other side the ECB comment is expected to be mild with rather no interest rate cut. Probably once again be U.S. will surprise investors with positive data. This week the number of important data will be released: the ISM indices for industry and services and most importantly, the monthly data from the American labor market of the change in nonfarm payrolls and unemployment rate. Last week strong data from the United States were the catalyst for stock increases on Wall Street. The rise of 0.8% in the S&P 500 may not be impressive but closing above 2,000 points may be of considerable importance from the psychological point. You can risk saying that if the perspective of interest rate hikes by the Fed was not in the market’s mind, the S&P500 would have been a few or several percent higher. We believe that this week the data from the USA, the MPC and the ECB will support capital markets and the WIG20 will attack the 2500 points. On the other hand you have to remember about the Ukrainian conflict and it’s risks.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Last week there was a great chance for the WIG20 index to return positive result for the third consecutive week. Unfortunately this opportunity was lost due to escalation of the Ukrainian conflict and the index closed further away from 2500 pts. The positive aspect of last week’s trading is the fact that the support at 2400 was held and the technical side is convincing. We think that the index might be still missing the strength to puncture resistance group around 2500 pts. Because of this we believe the base scenario is consolidation between 2400 and 2500 points.

Graph 2. Cyfrowy Polsat daily Source: Stooq

Trading in hope of good Q2 results could pay off, but after their publication strong profit taking was induced by Cyfrowy Polsat investors. Not to forget the weak image of the entire market. One of the positives was the fact that strong demand lifted the share price above 25 PLN which is a confirmation of the strength uptrend. The Company has established a new historical high of 25.80 PLN and has strong reason to presume that trend will continue. Technical image was weaken by the puncture of 24 PLN support. Downward move below this support would complicate the technical situation and might result in testing the main line of the upward trend.

Authors: MM Prime TFI S.A. Investment Management Team.

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