WEEKLY COMMENT MM PRIME TFI S.A. - December 8, 2014
Last week a demand side was in power on the WSE. The WIG20 rose by 0.9%, while WIG50 went up by 1%. This was consistent with the performance of Western Europe indices. The CAC40 and the DAX were also up approx. 1%. In the US, the S & P 500 index scored seventh upward week in the row, ending with an increase of 0.4%. The worst performer on the WSE was small stocks index – the WIG250, which at the end of the week did not change its value. Demand for larger papers confirms the thesis of external causes for good moods at Ksiazeca street.
Looking at theeconomic datafrom Europepublished lastweek,it wasa bit surprisingthatmarkets rallied. As a matter of fact there wasa decrease in activityin German industry(final PMIat49.5points). French PMI was slightly better, but stillbelow thelevel ofdevelopment of the sector. Comparing to this background,thePolishindustrialPMIat53.2points (forecast of 51 points) was a very positive reading. However this favourable interpretation is not great for bulls as high reading was one of the argumentsfor the MPCnot to cutinterest rate. It is true thatstatement afterthe meetingdid not closethe roadfurther cuts, but decision will be biased with further data releases. Thus,a goodfuture readingsofthe Polish economymight not necessarilycontribute to increases on the WSE.Unlikein Euroland–where poorPMI’swere usedto playfor thedecisionof the ECB.Finally,M.Draghidid not announce an introduction to European QE during the conference, but he made it clearthat the ECBis working onvariantsof quantitative easingand thereductionof GDPand inflationforecastsis apreludeto this program.On Thursday,the indiceswereunder pressurebecause of unfulfilledhigh expectations, but on Fridaythey were back in rise,sincethere were rumoursaboutthe introduction ofQEin January.Meanwhilein the US, where the entireamount of datahas proved to begreat.ISMindexforservices and industryfared betterthan expected, especially surprisingwas huge(321 thous.)employment increase innon-agricultural sector. Despite the fact thatitraisesexpectations forrise of interest rates from Septemberto holiday period, market welcomed strong data with bullish attitude.
In this week there will be much less of important economic data. Those already published (industrial production in Germany and dynamics of imports and exports from China) were weak. The most important later in the week will be the Chinese data - CPI inflation, industrial production and retail sales. First of all, they can adversely affect the prices of raw materials, and thus might effect KGHM. General optimism after last week should not be spoiled but the fear of technical correction on the DAX and S&P500 might start growing.
Graph 1. WIG20 daily. Source: Stooq
The WIG20 weekly earnings was 0.9%, and it would have been much better if not for poor Thursday's session. There was a slight upside breakout from a triangle formation, which should contribute to the growth of WIG20 above the resistance level at 2476 points. However, its penetration is already a big question mark because turnover is not rising while positive sessions should be followed by an increase in trading activity. If we managed to break through resistance at 2476 points, it will open the way to 2560 points. However, it seems that it is less realistic scenario than moderate increases in WIG20.
Graph 2. Eurocash daily. Source: Stooq
Eurocash was chosen for the company of the week due to a 10-percent increase in the value of shares in the last week, which has important technical implications. It's very clear that the long-term downtrend line was punctured. Bulls started coming to the lead, and the only thing missing is a clear turnover increased, confirming the advantage of buyers. The nearest resistance is at the level of 45 PLN, following are set at equal intervals of 5 PLN ( 50 and 55 PLN). In this wave of growth it is quite possible to reach 45 PLN, where the correction move might be generated. A flatter form of movement should be consider as a form of consolidation.
Authors: MM Prime TFI S.A. Investment Management Team
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