Summary

The beginning of the week did not indicate a change in sentiment on global financial markets. During the first days of the week some of major stock indices in both Europe and the U.S. were able to slightly gain, another were just oscillating around the last week’s closing line. But things changed on Thursday, when an optimism returned to the markets thanks to dovish ECB President's comment. After the meeting when the ECB left interest rates unchanged Mario Draghi said that the European QE program will last at least until September 2016. It was also said that in order to support economic growth and inflation in Europe the QE might be extended. As a result, stock markets in Europe and in the U.S. have grown. On Friday the People's Bank of China cut benchmark interest rates for the sixth time in 12 months. This decision propped up a good mood on the markets. Additionally the demand side was supported by the preliminary PMIs published on Friday. Flash Germany manufacturing PMI printed at 51.6 vs 51.7 exp, while flash Eurozone manufacturing PMI came in at 52 vs 51.7 exp. Flash Germany services PMI came in at 55.2 above expectations at 54, while flash Eurozone services PMI came in at 54.2 above forecasts (53.5). Thanks to successful the last two sessions major European indices ended the week with significant growth. The DAX rose by 6.8%, thereby it overcame the September peaks. It gives hope for trend reversal or at least to an upward correction. The CAC40 gained 4.7% and the FTSE250 was up 2.1%. Unfortunately, the optimism on global markets did not spill over the Polish stock market. One could see that the uncertainty associated with the elections prevented investors from buying shares on the Warsaw Stock Exchange. In the week ending 23rd October the WIG fell by 0.5%, the WIG20 lost 0.7%, while the mWIG40 decreased 0.1%, and the sWIG80 lost 0.3%. Industrial production in Poland increased 3.9 YoY in September vs 3.95% exp. Poland’s retail sales in September grew by 0.1% YoY vs 1.4%.

It was a successful week on the markets in the U.S. The S&P 500 rose by 2.1%, the DJIA increased 2.5% and the NASDAQ was up 3%. Preliminary manufacturing PMI came in at 54 vs 52.8 exp. Data on the American housing market were positive. Only number of permits to build new homes underperformed, while the number of housing starts and existing home sales beat forecasts.

This week the Ifo Business Climate Index, the Conference Board index and preliminary reading for the U.S. GDP for the third quarter will be the most important figures. Investors might also look at the data on retail sales in Germany. On Wednesday the FOMC takes a decision on the interest rates, but we do not expect any changes. The PiS party win in the parliamentary elections in Poland which was in line with pre-election polls. It should defuse the uncertainty among investors on Polish WSE and may result in a rebound on the market.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

The uncertainty associated with the parliamentary elections in Poland resulted in no major changes of the WIG20 index. The spinning top formed on the weekly chart evidenced of indecision in the market. For more than two weeks the WIG20 has been consolidating within 2,095-2,150 points range. A breakout of the consolidation will give a short-term signal for further moves. In case of an upward breakout growths are expected to reach 2,200 points, or last September peak. In case of a downward breakout the WIG20 may drop to the important support level at 2,000 points.

Graph 2. Vindexus daily. Source: Stooq

Vindexus’ shares increased by 10.3% last week. The price was consolidating for several sessions, but last Tuesday it managed to break out of the consolidation gaining more than 7% within one day. Since 13th August when the upward trend was started Vindexus has been growing strongly. In late September, the price was able to end a downward trend lasting nearly year and a half. Vindexus ended last week in the important resistance area in the range of PLN 6,06-6,20, or the local peaks from May and September 2014. Short-term support is found at PLN 5,96, or the peak from 7th October. It is worth mentioning that the 9-session RSI oscillator showed a divergence, which may forerun a reversal of the upward trend.

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

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