WEEKLY COMMENT MM PRIME TFI S.A. - January 19, 2015
Week started in fairly quiet atmosphere. In the first half of the week investors traded in anticipation of an important meeting of the ECB that would take place on January 22nd. In Poland, lack of interest rate cuts by the MPC combined with the relatively convoluted translation of this decision did not really affect the image of trading on the WSE. It is worth noticing that this resulted in hawkish moods on polish currency (highlighting the lack of impact on inflation and lack of uncertainty). Everything was changed by unexpected decision of franc marketization against the euro after which Swiss currency suddenly strengthened by several percent. Simultaneous reduction of the interest rate corridor by 50 bps did not have much of an impact as automatic trading systems traded EURCHF pair lower and lower. Investors began to push capital rapidly in Swiss currency. The SNB on the conference after this decision did not rule out interventions to weaken the franc. It seems that central bank was also surprised be the scale of the movement.
The decision of the SNB increased market volatility significantly. Exchanges in Western Europe showed a high resistance. After initial declines, most of them recover the loses by end of the session. As a result, the DAX rose by 5.4%, setting a new historical maximum at 10207.97 points. The CAC40 grew by 4.8% and the FTSE fell by 0.6%. In the US, on the other hand correction move was continued (decrease of the S&P 500 by 1.2%), but mainly due to depreciation of oil prices, and not the decision of the SNB. Keeping the 2000 points level on the S&P500 is a positive symptom. In contrast, we have noted that the good performance of the markets in the euro area is probably the result of increased expectations of probable quantitative easing introduction by the ECB on January 22. Lack of the introduction might result in short-term profit-taking, but in the long term investors can still be optimistic about the fate of such indicies as the DAX and CAC40.
Looking at polish market, banks weight a lot in the WSE indices. Before the outbreak of the financial crisis polish banks lend a lot mortgages denominated in Swiss francs Although the risk of the default seems to be small (so say the regulatory stress tests), the psychological factor came into play and destroy the entire sector. Banks such as Millennium and Getin Noble (with a strong exposure to mortgages in Swiss francs) were down even several percent on Thursday. The WIG20 ended with a 3.6% decline, and the mWIG40 decline by as much as 4.2% (a large share of Getin and Millennium). The SWIG80 decreased only by 1.3%. This week we have data on industrial production, as well as the euro zone PMI.
Graph 1. WIG20 daily. Source: Stooq
The WIG20 should theoretically close the week at around 2350 points, or remain in suspension prior to the meeting of the ECB. However, the decision of the SNB effectively spoil the mood. There has been an increase in turnover on dips, and a week was closed by a decrease of 3.6%. Technically it seems that we are dealing only with the movement of return after breaking from the bottom of the course the bottom of the triangle formation. Luckily the WIG20 closed the week above 2250 points. Currently, an important area of support is 2225-2250. Puncture could intensify its decline. Important resistance is 2300 and 2350 points, with the only defeat of the latter clearly improve the situation of the bulls.
Graph 2. Getin Noble daily. Source: Stooq
Last week was definitely bad for polish banks. Getin Noble is the one which stood out negatively, falling by as much as 21.2%. This has led to serious consequences in the form of technical break of an important support at 2.03, as well as the psychological level of 2.00 PLN. Trading on the dips was heavy. The company also moves in a medium-term downtrend, which increases the strength of the sell signals. The nearest support is the level of PLN 1.73, but it's really 1.50 PLN that is a serious barrier. Negation of those signals would be an increase over 2.03 PLN, which seems to be quite difficult to do now.
Authors: MM Prime TFI S.A. Investment Management Team
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