Summary

Leaving interest rates unchanged by the FOMC increased investors’ fear about the global economy. Still persistent uncertainty had a negative impact on the behaviour of stock markets last week. Admittedly, most of stock exchanges started the week quite positively. But later it turned out that it was only a temporary stop ahead of further declines. Then Friday brought an improvement in investor sentiment. It was mainly due to Janet Yellen's Thursday speech, whose words sounded hawkish. The head of the U.S. central bank said that she anticipated an interest rate hike later this year. Moreover, there is no lack of similar outlooks amongst the members of the FOMC. The initiation of a rate hike by the Fed would remove the uncertainty among investors, which is especially increased recently. Last week was not rich in macroeconomic data. The preliminary PMI figures were noteworthy. Data for Germany were slightly weaker than expected. The manufacturing PMI amounted to 52.5 vs 52.8 exp, and the services PMI amounted to 54.3 vs 54.6 exp. The eurozone manufacturing PMI was in line with the consensus and came in at 52. The services PMI came in at 54 vs 54.2 exp. The Ifo business climate index rose to 108.5 beating the consensus expectations at 108. The Volkswagen scandal had a negative impact on the European stock markets. As it turned out, the company cheated on its emission tests. This threatens the company with huge penalties and loss of reputation. Over the last week, Volkswagen's share price dropped by as much as 34%. Investors were afraid that other European automobile manufacturers could also have cheated, so all these shares were being sold. China contributed to the declines as well. The September flash factory PMI was the weakest since 2009 (47 vs 47.5 exp). In the week ended 25^th September the DAX lost 2.3%, theCAC40 fell by 1.2% and the FTSE250 depreciated by 0.9%. The WSE performed poorly, as the energy sector weighed on the market. This was caused by the return of the fear that utilities will finance collapsing coal mines. Over the last 5 sessions the WIG fell by 2.7%, the WIG20 lost 3.5%, while the mWIG40 depreciated by 1.9% and the sWIG80 was down 1.3%.

Stock markets across the Atlantic also faced declines. The S&P500 depreciated by 1.4%, the DJIA fell by 0.4% and the NASDAQ was down 2.9%. The U.S. manufacturing and services PMIs for September were in line with the forecasts (53 and 55.6 resp.). Sales of new homes surprised positively in August and amounted to 552,000 vs 515,000 exp. The final GDP for the second quarter increased by 3.9% on an annual basis, above preliminary reading of 3.7%.

This week the U.S. labour market will be the most important, including the ADP and the nonfarm payrolls (NFP) report. In addition, manufacturing PMIs and ISM as well as the data on the CPI inflation in Germany and Poland will be published. ECB president and Fed chairman give a speech this week.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Unfortunately, the past week was not successful for the WSE’s blue-chip index. In the week ended 25^th September the WIG20 fell by 3.5%. It was the weakest week since the second half of July. The index broke below the support around 2,165 pts. as well as a short-term support from 2^nd September at 2,107 pts. But also, what is important is the support at 2,091 pts., or the down gap from 27^th August was not broken. If bears manage to break through that support, the way for further declines will be open, which can even reach the area near 2,018 pts., where another important support is found.

Graph 2. Vindexus  daily. Source: Stooq

Vindexus shares behaved very well last week. In the week ended 25^th September the price rose by 12.1%. Vindexus was in a long-term descending channel initiated in April 2014. However, last week it managed to break the upper limit of the channel generating a buy signal. In recent weeks Vindexus was moving in a short-term downtrend in the area near the upper limit of the descending channel. But last Monday it broke through the trendline creating a large bullish candle. Elevated volume was the confirmation of this movement. A spinning top candlestick emerged on Friday. It may indicate weakness among the bulls. A bearish divergence appeared on the 9-session RSI chart, so the likelihood of a correction increased.

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

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