Biden in Poland. PMIs from Europe in the spotlight

Yesterday's session in the financial markets was calm, which was mainly due to market holiday in the US and lack of macro data releases from the US and the euro zone. We have learned a package of data from Poland, which shows that the industry is slowing down and disinflation processes are becoming more and more visible, which is consistent with the expectations of the Monetary Policy Council. He came to Poland President Biden.

On the market at the moment geopolitical topics dominate. We are getting closer to the anniversary of the outbreak of war in Ukraine and the risk of a surprise reaction from Russia is growing. The 10-hour journey by the US president to Kiev by train was symbolic. In this way, support for President Zelenski was shown. Biden said his goal was to reaffirm Ukraine's "unwavering and unwavering commitment to Ukraine's democracy, sovereignty and territorial integrity." Today, the US leader is visiting Poland and will deliver a speech.

Strong European exchanges

There was a fairly flat session in Europe. Dax lost just 0,03 percent. and French CAC40 fell by 0,16 percent. Indices in Poland fared worse. The WIG closed the day in the red with a result of -0,36 percent. and the WIG20 is over 0,5 percent lower.

Recently European stock exchanges show strength. The main benchmarks from the UK and France either equaled or exceeded all-time highs. However, the German Dax still lacks more than 750 points. to achieve a similar result. In February, its quotations are in a consolidation limited from the top to the level of 15.600 points. and from the bottom with an area of ​​15.290 points. The layout on the chart shows that if there is no increased risk aversion in the coming days, the upward momentum that started in October will continue.

Today we will get PMI indices for the euro zone. They will probably show levels above 50 pts. thus signaling an increase in economic performance for the second month in a row, driven by a strong service sector. Data of this type are usually of secondary importance for the euro. It may be a bit different now. EBC waiting for signs that monetary policy tightening has reached the real economy. These are not showing up yet. At the moment, euphoria prevails that Europe has avoided a deep recession as a result of the energy crisis - which can be largely attributed to a mild winter. Better today's data, however, will mean that the bank can count on a lesser extent on a decline in demand, which will consequently suppress inflation.

The lenient approach of the Bank of England

Recently, expectations for ECB rates have been rising - this supports the euro, not allowing the currency to depreciate significantly. Higher rates maintained longer is probably a realistic scenario for the European institution. The monetary policies of the ECB and the Fed are becoming more and more similar, therefore EUR / USD it has been oscillating around 1,07 for a long time and there is no major impulse to give a further direction. Which currency will perform better in the medium term will largely depend on which bank holds the "higher interest rate" longer.

Looking at Fed Funds futures contracts, the market is fully pricing in a 25 bp hike at two subsequent meetings in March and May and assumes 80 percent. chances of a third move of the same value in July. This week, minutes from the last FOMC meeting and Friday's US spending data will be crucial for the dollar.

In the case of the ECB, the OIS market is pricing in another upward move on rates by a total of 123bps. by the end of the year, which would mean that the deposit rate will increase to 3,73 percent. A slightly softer approach is expected from the Bank of England. Here the futures market points to a hike of 48 bp. until August 2023, which will "push up" the main rate to 4,48 percent.

Source: Łukasz Zembik, OANDA TMS Brokers