Summary

Last week was dominated by the red color leading to the worst opening of a new year in history. The declines were caused by weak economic data from China. On Monday there was a release of the industrial PMI. It stood at 48.2 pts. to the expected 49.0 pts.. In addition, the services PMI unexpectedly failed (50.2 pts. vs 52.3 pts. expected). This data indicated a slowdown in Chinese economy. Moreover, accompanying strong pressure, which was resulted from the expected expiration of regulation that restricted the sale of shares by investors holding at least 5% equity stake in the company, led to the increase of tension in the markets and even panic. As a result, the sessions in Shanghai were closed twice before the time. Consequently, the main global stock exchanges started to decline. Investors had expected the markets’ sentiment improvement on Friday – there was a reading of data on labor market in the US (payrolls). They were much better than expected, whereas they did not change the markets’ tone. Furthermore, there appeared some rumors of dovish FOMC’s sentiment. In the background the euro zone released some data which indicated the economic growth. Therefore, the NASDAQ decreased by 5.3%, the DJI went down by 4.7% and the S&P500 declined by 4.5%. In regards to Europe, German DAX and French CAC40 fell by 4.2% and British FTSE250 decreased by 2.3%.

Sentiment in China led to declines in the WSE. Because of increasing risk aversion, foreign investors began to seek safe haven. Unfortunately, Polish stock market does not belong to them. Moreover, there were not any economic data readings in Poland. If there had been some positive signals from the economy, they would probably have mitigated declines. Additionally, a high political risk did not help the WSE to grow and discouraged investors. Therefore, the WIG20 moved towards the south and declined by 4.4%. Small and medium – sized companies did not manage to end the week in the green- the mWIG40 went down by 4.4% and the sWIG80 fell by 1.6%.

In the coming week, financial markets will be still under the pressure of China’s slowdown. On Wednesday, investors will learn the volume of exports and imports in a second - largest world economy. Meanwhile, there will be a release of Beige Book in the US. Moreover, investors will learn the dynamics of euro zone’s industrial production. It is also worthy paying attention the reading of retail sales and industrial production in the US. In Poland, the MPC will make a decision on interest rates, which probably will not be changed.

Technical analysis

Graph 1: WIG20 daily. Source: Stooq.

Certainly, the first week of the new year was not successful for the WIG20. The index of the largest companies has been in a downward trend since October. Furthermore, the index dropped to lowest levels since 2009. The WIG20 ended a week at the level of 1725 pts.. However, the RSI oscillator was slightly below the 30 pts. mark and it will probably indicate a buy signal soon. Nevertheless, high political risk and a strong aversion to risk caused by China’s situation will affect the WSE negatively. Therefore, the buy signal will probably bring only a slight correction.

Graph 2: Synthos daily. Source: Stooq.

In the background of red Polish stock exchange Synthos was another green pearl. The company’s share price, which was in a medium term consolidation, broke the support level of PLN 3.69 and started a downward trend. Lately, the bulls dominated. As a result, the share price approached the resistance level at PLN 4.0. A breakthrough probably will give a positive signal for further growths. It is worth noting that the RSI oscillator did not indicate any signals. Nevertheless, it was in an upward trend. This means, that it will probably indicate a sell signal. Therefore, the share price will not be able to break the next resistance.

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

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