Summary

Last week brought a continuation of declines on global markets. European stock exchanges took the hardest hit. Biggest loss was noted in Paris, where the CAC index slid more than 5 percent. The German DAX fell by 4 percent and finished below the psychological barrier of 9000 points. Similar declines were recorded by British FTSE, which fell by 3 percent. The situation did not look any better overseas. The S&P500 fell by more than 3 percent and the NASDAQ lost more than 4 percent. The main catalyst for the continuation of declines in global exchanges was the reduction in global economic growth published by the International Monetary Fund. The analysis showed that this year the world economy will grow by 3.3 percent (earlier estimates indicated 3.5 percent), and in 2015 by 3.8 percent (previously 4 percent). Looking at the positives, worth noticing is a strong inauguration of third quarter result publication season in the United States. The numbers released by both Alcoa and Pepsico were better than expected.

Shares on the WSE followed the global sentiment, however, losing less than foreign indices. The WIG20 fell by more than 2 percent. Indices of small and medium-sized companies the WIG50 and the WIG250 performed better, falling by about 1.5 percent. On the Polish market the key event last week was the decision of the Monetary Policy Council to cut interest rates to the lowest levels in history. The MPC lowered the reference rate by 50 basis points to the level of 2 percent (market expected reduction of 25 bps). Because the bond market and FRA contracts reflects the reduction of the reference rate of 75-100 bps it seems that the main source of a significant sell-off of banks including Getin Noble Bank (-13 per cent.) or Alior (-8 percent.) was the reduction of the lombard rate by 100 basis points. to 3 per cent. This rate (multiplied four times) sets the maximum interest rate that banks can charge in respect to credit loans. A decrease of 100 basis points means a decrease in the maximum rate of the loan from 16 to 12 percent. The above-mentioned banks derive substantial income from cash loans and credit cards.

This week the market will closely watch inflation of the largest economies in the euro zone, Poland and in the United States (industrial production data will also be released this week). If inflation readings are lower than expected, we can expect more dovish assurances from the European and American monetary authorities, which may cause the end of the correction on the global markets. In Poland, we may be getting closer to a further reduction in interest rates. The President of the Polish Monetary Council Marek Belka during Friday's interview with Bloomberg expressed the view that looking at the current situation, the MPC will not wait with additional steps (if required) by 2015, and ought to finish rate cuts by end of this year.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Previous week was a third consecutive week when the WIG20 returned negative results. Index lost more than 2%, as a result of the implementation of the formation of a double peak with a range of a drop to 2350 points. As there was no improvement in recovery on global markets Monday's attempt to negate the formation of a decline ended in failure. This time turnover slightly increased in addition to the broken level of 2400 points. New target is set at 2350 points. Return of the WIG20 index above 2400 points could be considered slightly positive.

Graph 2. Orange daily. Source: Stooq

Not so long ago we mentioned about the technical situation of the company Orange. Stock surged with a chance to reach 13 PLN after a several months of consolidation between 9 and 11 PLN. This has been partially achieved, the company rose to 12 PLN, after which stock sharply slid, with the accompaniment of the weak market. The double peak formation was completed and the rate went below 11 PLN, testing the uptrend line now. This is an important level of a support and, if broken, stock may decline to this year's lows at 9 PLN. A positive signal would be an increase above 11 PLN.

Authors: MM Prime TFI S.A. Investment Management Team

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