Summary

Last week bulls have failed all along the line. Moods turned sour firmly because of events in Russia, where ruble lost chunk of its value. Apogee of the decline was noted when Central Bank of Russia rushed to help the currency and raised its key interest rate by 650 basis points to 17%. This supported the ruble only for a short period of time after which currency plunged as much as 20% against the dollar. Before Russian currency stabilized in the second part of the week, a wave of fear ran through the markets. Double-digit losses were noted by Russian RTS. Other markets were also hit. Especially emerging markets, which also includes Poland. Increased risk aversion caused a basket evacuation from WSE. This has only stopped during Thursday's session thanks to the FOMC. Communication and press conference have been interpreted by the stock markets as dovish. Fed will patiently approached the interest rate increases. As a result of this market expects an increase in interest rates as early as mid-2015. Despite of this it is likely that in the event of deterioration in the macro data or growing risks for the global economy, the Fed will adjust their actions. Optimism on the WSE last only one day. Friday was another day of declines.

The balance of the week, looks unfavorably for the WIG20 that noted a decrease of 2.1%, similar to the WIG30. Small companies performed much better – the WIG250 fell by 1.6%. The WIG50 which represent mid cap stocks recorded a reduction of only 1%. The largest losses noted by blue chips and by Polish zloty was the aftermath of the evacuation of foreign investors. The WSE has recovered some of the losses at the end of the week, but it is the DAX and the CAC40 that returned solid pros, growing by 2 and 3.2% respectively. Least worried of the situation in Russia, were indices in US. The S&P 500 was up 3.2% and is now on the verge of testing the historic heights at 2077.85 points.

This week will be shorten due to the Christmas holidays. In fact, from Monday many investors would rather be thinking about dressing the Christmas tree or Christmas shopping, so lower liquidity is expected. Tuesday would be the last session on the WSE until after Christmas. On that day a set of data from the US will be announced. Polish investors would also be interested in retail sales readings from Poland. Industrial production for November was a disappointment. If sales data is poor it will increase the likelihood of interest rate cuts by the MPC. It is worth to remember that as many as 4 members during the November meeting supported the reduction of not only 25, but also about 50 bp. However, if indexes like the DAX and the S&P500 have a chance to beat historical records, for the WIG20 success will be to maintain above the level of 2300 points.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Last week the WIG20 lost 2.1%, luckily defending the week closing prices of 2300 points. The decline during the week temporarily reached the level of 2250 points. This level is a very important support and it refrained declines this year three times. Possible break of this important barrier, and further level of 2250 points would clearly be a negative signal. So far, we expect a rebound attempt and attack of a resistance at 2350 points, Significant turnover on Friday’s session was caused by block trades on Synthos and expiration of December series of contracts.

Graph 2. PGE daily. Source: Stooq

PGE last week lost 6.4%, and did not take any advantage from improving sentiment during the second part of the week. This is a significant decrease that might cause a breakdown of support at the level of 18.90 PLN. This is the minimum from the beginning of July, and this level coincides with the long-term uptrend line. This level was not puncture significantly however if share price would not quickly return above PLN 18.90, it could be considered as a sell signal. If this happen there is the risk of further decline of up to PLN 14.80.

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

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