Weekly comment MM Prime TFI - August 17, 2015
Last week the People's Bank of China (PBOC) made the surprising decision to devalue the yuan. The renminbi has suffered its biggest drop since 1994. It was believed that the decision was aimed at strengthening Chinese exports, which has weakened recently. A cheaper yuan will help make Chinese exports more attractive and boost China’s economic growth. The PBOC explained that the devaluation was caused by a significant shift in how it manages the yuan by allowing market forces to play a bigger role in valuing the currency. That will make the yuan more liquid. It can have a negative impact on the global economy. So investors reacted very nervously and financial markets suffered. However, on Thursday PBOC reassured financial markets saying that there are no grounds for the support of further devaluation. Despite this, last week on major European stock markets cannot be considered as successful. The DAX fell down 4.4% and still continued to move horizontally. The CAC40 lost 3.8% and closed the week below 5,000 for the first time for over a month. The FTSE250 dropped only by 0.2% and also stuck in a few months horizontal trend. The Warsaw Stock Exchange was more resistant to the situation on the core markets. Major indices showed low volatility. The WIG20 rose 0.1%. The situation in small and medium-sized companies still looks positive. The mWIG40 advanced 0.9% and the sWIG80 increased 0.4%. The WIG gained last week a modest 0.3%. After the yuan devaluation major indices in the US fell. But afterward the sentiment improved somewhat. The S&P500 rose 0.7% and still kept in a few months horizontal trend. Just as the DJIA, which ended 0.6% higher. The NASDAQ was up 0.1%.
The July data for retail sales and industrial production in China were weaker than the consensus. In contrast to China, the US July retail sales and industrial production were better than the expectations. Polish CPI surprised positively. Although it had negative growth, it was higher than expected. The preliminary German second quarter GDP year on year was better than expected. Polish and euro zone GDPs surprised negatively. The bailout bill passed through the Greek parliament and the Eurogroup. It made Greece virtually certain that they receive financial assistance amounting to a maximum 86 billion euro in return for more far-reaching reform.
This week the important data will be housing starts, building permits and existing home sales in July in the US. Retail sales and industrial production in Poland will be worthwhile as well. This week the US CPI and the preliminary China’s manufacturing PMI will be also published. Importantly, the minutes of the latest FOMC meeting and the MPC meeting will be released.
Graph 1. WIG20 daily. Source: Stooq
Technically the blue-chip index did not change too much in the past week. The WIG20 was oscillating just below the resistance at around 2,225 points. In the week ending 14th August its value has changed slightly increasing by 0.1%. The WIG20 ended Friday's session at 2,198 points. It was the third consecutive week when the index had a problem with effective break through the resistance level which was the hole from 16th January. This time energy sector companies instead of banks weighed on the index. The sector suffered from hot weather. Invariably major support is located at 2,166 points, or the hole from September 2013.
Graph 2. Colian daily. Source: Stooq
For several months the food and beverage company shares performed very decent. From the beginning of the year the shares have gone up by over 40%. Only in the last week the course gained 10.5%. The Colian shares are in an uptrend started almost a year ago. On Thursday after a short-term consolidation around 4.43 PLN the bulls managed to break through the resistance which was the peak from January 2014. It cleared the way for a test of the area around 4.90-4.98 PLN, peaks from 2010 and 2009 respectively. The shares closed at 4.86 PLN on Friday. After recent rally a 9-session RSI oscillator moved up to overbought area, so a correction is possible in the near future.
Authors: MM Prime TFI S.A. Investment Management Team
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