Summary

Last week’s calendar was rich in both macro data and significant market events. This time it was not the ECB but the data from the American labor market that proved to be the most surprising. The ECB kept interest rates unchanged and announced the details of ABS-s and covered bonds purchase program. Nothing else was revealed that could surprise the markets. Meanwhile, the strong positive surprise came out of the American labor market, where the unemployment rate unexpectedly fell to 5.9%, the lowest level in more than six years. Non-farm payroll have returned well over 200 thousand. jobs. After the publication indices on Wall Street ended more than 1 % higher. This shows that the condition of the labor market is more important for investors than concerns of a rapid increase in interest rates by the Fed. In the perspective of the whole week the S&P500 lost slightly (0.8%). A clear activation of the demand at the end of the week looks promising. Sentiment on major European bourses was not optimistic. The DAX and the CAC40 lost significantly (second week in a row), respectively by 3.1% and 2.6%. The ECB was not as dovish as expected and the data from Europe still remain weak.

Warsaw Stock Exchange outperformed Europe's developed markets. The WIG20 lost ‘only’ 1.6%, the WIG50 fell by 1.9% and the WIG250 dropped by 1.4%. Even that we have witness the second declining week on the Warsaw Stock Exchange. No recovery of the copper market coupled with rumors of a higher tax for large companies in Chile resulted in breaking 125 PLN support for KGHM and squandered a chance for a growth. Energy sector looked also poorly. Sub-index led by PGE fell by more than 3%.

What can investors await this week? Certainly markets can still grow on good data from the American labor market, where strong Friday session on Wall Street should affect morning trading on European bourses. Protests in Hong Kong weaken, the number of protesters has significantly reduced, local stock exchange clearly regained vigor on Thursday and Friday. When it comes to new impulses it will be difficult. The macro data calendar is almost empty, as is usually the case after the publication of data from the American labor market. However, there is a lot of public statements of members of the FOMC and the ECB, where references to monetary policy can be a source of volatility. For the WSE, the decision of the MPC will be a key news. It is almost certain that the Committee will lower interest rates by 25 bps. If they make an attempt for a bolder move and cut by 50 basis points., it could be clearly upward sign for the WSE. In addition, trading in Warsaw will be also affected by the global factors.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

The WIG20 unfortunately noted another poor week, during which the index lost 1.6%, recording a 4% drop in valuation over the last two weeks. This complicated the technical situation as the formation of a double peak was established (with a 2350 points drop range). First important resistance level will be at 2400 points. Fortunately, drops were not supported by increased turnover. It is possible that when the global equity markets recover, these technical sell signals would be forgotten. However, there is still an eventuality that the WIG20 will fall by further 4%.

Graph 2. Azoty daily. Source: Stooq

We draw attention to the company in the chemical industry - Azoty, due to its strong declines that occurred after the break of the uptrend line. Buyers have activated below the level of PLN 60 and this psychological level was sustained last Friday. You can also noticed the completion of the entire range of a decline (breaking the bottom of the consolidation between 68 and 80 PLN). Friday's session resulted in the creation of the chart formation which suggests that declines in Azoty could come to an end. The nearest resistance is a past broken support level of 68 PLN. Closing below 60 PLN will negate a buy signal.

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

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