WEEKLY COMMENT MM PRIME TFI S.A. - SEPTEMBER 29, 2014
Last week brought significant correction across most of the markets. Although the WIG20 lost more than 2%, the index managed to defend 2,450 points. Declines affected particularly the American market. This was a surprise as mostly of positive news came from overseas. The PMI indices for manufacturing and services sector for September were again at very high levels. This means that the level of GDP growth for the third quarter will also reach peaks. The strength of the American economy was confirmed by another upward revision of historical figures of GDP growth for the second quarter. What could prompt investors to sell shares, is the fear of the acceleration of rate increases by the FED, which is always a negative signal to the stock exchange. Apple Corp also took part in declines on the New York Stock Exchange. Recent complaints of customers on the latest iPhone were primarily caused by phone plasticity. Another event was a great debut of Chinese company – Alibaba. Institutional investors may sell other stocks to accommodate new holdings in their portfolios.
The currentweek is going to be extremelyinteresting. Whilethere are no significant readings in calendar on Monday, Tuesday will bring a solid portions of macro data. Starting with Chinese PMI, followed by Chicago PMI index and European PMIs for industry and services, through Friday's data from American labour market. Investors can not forget about Thursday's ECB meeting where chief of the institution M. Draghi is expected to serve dovish comments. It will be a key event for the currency market, but certainly possible announcement of quantitative easing would be a powerful fuel for the exchanges. In this context, a good mix of data from Europe would be low inflation in September in conjunction with better data on PMI. In the case of the USA it is difficult to clearly indicate whether better data would be desirable for the bulls. A possible second consecutive weak reading of nonfarm payrolls would give a lot to think to Federal Reserve, and would dismiss a prospect of interest rate increases in nearest future.
The start of the week on Asian stock markets is mixed. It is good that bad moods from Hong Kong, where protests associated with a fracture of the democratic choice of the head of the administration did not affect Tokyo or Shanghai stock exchanges.
In case of possible rebound on markets across the globe we draw attention to investment on WSE as the petrochemical sector, KGHM and banks in the context of strong growth potential.
Graph 1. WIG20 daily. Source: Stooq
Last week was not great for the WIG20. Index fell by 2.2%, negating almost the entire upward movement that begun two weeks ago. More disturbing is a possible construction of a double peak formation. Even though the important support is located around 2410 points it is equally important to keep the 2450 points level. This is the level where the WIG20 rebounded last week. If this barrier fails, the construction of the double peak formation would become a fact, and a drop to 2350 points would be the realization of the scenario. This pessimistic vision is a little less likely due to the positive Friday's closure. Nevertheless the current week is very rich in macro data, which can carry a high degree of volatility.
Graph 2. KGHM daily. Source: Stooq
We have picked KGHM as stock of the week due to the fact that volatility slowed down and the important support of 125 PLN was defended as of Friday’sclose. Had it been broken, KGHM would have entered the short-term downward trend with new props arranged roughly every 5 PLN, ranging from 120 PLN. If a successful defense of the support would be confirmed at the beginning of the week, it may be the beginning of the consolidation course for KGHM, between 125 and 140 PLN.
Authors: MM Prime TFI S.A. Investment Management Team
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