Weekly comment MM Prime TFI - August 10, 2015
It seemed that the main Polish indices were effectively making up for losses from previous weeks. Unfortunately, declines returned again to the Warsaw Stock Exchange. Politicians, like the week before, contributed to the indices movements. On Wednesday evening, the lower house of the Polish parliament passed a foreign currency mortgage loans law, which enables borrowers to convert them into PLN. Banks will take on 90% of the costs of such conversions. Although the law must still be passed by the Senate and by the new president, investors did not commend it. On Thursday the banking sector was struck by sellers and the WIG Banks index lost nearly 6%. As usual, poor attitude to banks contributed to declines of the WIG20 and overall deterioration of market sentiment . The WIG index slipped 0.6% and the WIG20 fell by 1.4% in the week ending 7th August. Medium-sized companies suffered little less, the mWIG40 lost only 0.1%, but on Wednesday the index was at the highest level since May 22nd . The sWIG80 was not affected by the sell-off of the banks shares, it was up 3.1%.
The last week was rich in macroeconomic data, mainly in final PMI indices. Data for Polish, German and the euro zone economies were not worse than preliminary data, although the data for Germany and the euro zone were slightly weaker than in the previous month. Poor situation in French industry was confirmed by the PMI below 50 points. The DAX rose 1.6% in the week ending 7th August, but it still remained in a few months horizontal trend. The FTSE250 slipped 0.1%, and the CAC40 performed well and ended 1.4% higher. It is worth noticing that on Thursday the index was at the highest level since the end of April.
The US services sector performed very well in July. The July PMI and the July ISM increased compared to the previous month, and the ISM reached its highest level since August 2005. However, the most important publications were those concerning the US labour market. Firstly, relatively weak ADP monthly jobs report came out. Then the Bureau of Labor Statistics released data slightly weaker than expected. But the previous month payroll number was revised up. In the end, the readings can be considered slightly dovish. Among the major US indices the S&P500 and the DJIA still kept in a few months horizontal trends, and tumbled 1.2% and 1.8% respectively, while the NASDAQ lost 1.7%.
This week the most important data will be readings of GDP growth for the second quarter and the July CPI inflation for Poland and major European economies. The data on the US and Chinese retail sales and industrial production will be also important.
Graph 1. WIG20 daily. Source: Stooq
Unfortunately, the WIG20 again had trouble with overcoming the resistance around 2,225 points. On Wednesday the index closed above this level, but Thursday and Friday brought declines and the break was negated. Banks, and more specifically the politicians, caused the declines. Unfortunately, the fact is that without banks the WIG20 is not able to fight for greater growths. As a result, the index was still at the lower limit of over two-year consolidation. The WIG20 ended the week just below the level of 2,200 points and now it will be the closest psychological barrier to overcome for the bulls. The closest major support level is at 2,166 points.
Graph 2. PKN Orlen daily. Source: Stooq
Just like two weeks ago the PKN Orlen deserved the company of the week name. The shares stood out positively unlike the other blue chips. Since Wednesday, the share price was reaching its new historical peaks each day. The latest record price is 83.48 PLN. For nearly two weeks the course effectively remained above the support located around 74.35 PLN. An upside breakout from the consolidation resulted in a more lively upward movement. On the 9-session RSI indicator chart a divergence began to form. Adding the scale of recent increases (in the last 5 sessions the shares had appreciated 9.1%), investors should be cautious of the possibility of a correction move.
Authors: MM Prime TFI S.A. Investment Management Team
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