Summary

The FOMC's two-day meeting and the decision concerning interest rates in the United States were last week’s major events. The Federal Reserve left interest rates unchanged. Although analysts were divided in opinion on the decision, the majority expected just such scenario. In the statement after the meeting the Fed said that they expect further improvement in the labour market. They pointed out the negative developments in the global economy, which have taken place recently. It is mainly about the Chinese economy condition and bearish oil prices. Additionally, the FOMC must be reasonably confident that inflation will move back to its 2 percent objective over the medium term before they hike interest rates. During the week in anticipation of Thursday's decision the trading on world's major stock exchanges ran fairly quietly. In spite of a favourable decision on interest rates, at the end of the week most stock exchanges fell. It was the consequence of the extension of uncertainty concerning the beginning of the U.S. Fed rate-hiking cycle and Fed’s concerns relating to the condition of the global economy. As a result, most of stock exchanges ended the week in the red. The German DAX dropped 2% and descended below 10,000 points. Despite a successful most of the week, on Friday the CAC40 gave up all last profits and ended the week 0.3% below the closing line. In comparison to other indices the British FTSE250 behaved slightly better and in the week ending 18th September lost only 0.1%.

The Warsaw Stock Exchange was also not indifferent to the decision of the FOMC. The week was characterized by low volatility except Friday, when futures contracts expired. It usually entails with an increase in investor activity. In the week ending 18th September the WIG fell by 0.4%, while the WIG20 lost 0.8%. The mWIG40 depreciated by 0.1%. In comparison with other indices the sWIG80 performed very positively and rose by 1.1%. The August data on industrial production and retail sales disappointed. The CPI inflation was almost in line with the consensus and it pointed out that in August we were still facing a deflation.

In spite of a successful first half of last week, in the end, the stock markets in the U.S. fell. The S&P500 lost 0.2%, the DJIA fell 0.3%, while only the NASDAQ gain 0.1%. Retail sales and industrial production for August disappointed. The August CPI increased less than a month ago.

This week a number of preliminary PMIs will be published. The Ifo Business Climate and German inflation will merit particular attention in Europe. In addition the final data on the U.S. second quarter GDP and the U.S. existing home sales will be released as well. Some of the heads of the regional Fed banks, including Janet Yellen will give a speech during this week. They may relate to the future path of the Fed’s monetary policy.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Last week, the WIG20 unsuccessfully tried to break through the resistance at the psychological level of 2,200 pts. Unfortunately, on Friday the index plunged. From a technical point of view, it is crucial that the WIG20 managed to hold above the support at around 2,165 pts. This is all more significant because of the long lower shadow of Friday’s candle which went beyond that support level. In the near future we expect the recovery initiated in late August, which resulted in breakout of the several months descending channel, to continue. The nearest support is found at around 2,165 pts., and the nearest resistance is found at 2,200 pts.

Graph 2. Bytom daily. Source: Stooq

In the week ending 18th September Bytom grew by 12.6%. It took place after the price had reached the lower limit of the growth channel initiated at the beginning of this year. The resistance at PLN 3.24, the last local maximum from 3rd September, was broken. Moreover, Bytom also broke up through important resistance level at PLN 3.30 set out by the down gap from 21st August. Elevated volume was the confirmation of the recent increases. However, investors should attentively monitor the situation as the recent breakout might be a false one due to the 9-session RSI oscillator came closer to the overbought area. If it happens, a return to the last downward correction will be possible. Otherwise, PLN 3.43 will be the next resistance, or more than a 7-year peak from July. For the time being, the closest support is the latest overcome resistance at PLN 3.30.

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

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