An interest rate cut, while it weakens the local currency, it has a positive impact on the equities markets. Such expectations lifted US indices during this week. The Dow Jones Industrial Average declined at the beginning of the week to 13,030. It rebounded from this support level to gain 3.34% to reach 13,466 on Thursday. The S&P 500 dropped to 1,439.1 on Monday to rally 3.45% all the way to 1,488.8. The Warsaw Stock Exchange’s benchmark index, the WIG20, rallied from 3,448 to 3,648 gaining 5.8%. After worse than expected Retail Sales publication in the US on Friday, the WSE’s major index dropped to 3,598.

During the same period of time, the EURUSD shoot up from 1.3776 all the way to a new all-time high at 1.3925. The weakening of the American dollar and the good performance of equities can be mainly attributed to investors, who expect the US central bank to cut interest rates at their September the 18^th meeting. Such cut will spur investment of companies and decrease their cost of credit. Equities will become a more attractive medium of investing. It seems that the market has already discounted the 25 basis points interest rate cut. If the FOMC decides to cut interest rates by 50 basis points, to 4.75%, gains of equities can be even bigger.

In Poland, new elections are coming but the geopolitical turmoil is not affecting the stock market as it could. The WIG20 index follows the major US indices, which can be perfectly seen when analyzing the charts. Also, macroeconomic publications from the US affect the Polish market more than publications from the local market. As reported by the government, the Polish current account declined to -1.3 billion euros while the Consumer Price Index (CPI) inflation decreased to 1.5% in August from the 1.9% in July. The inflation reading confirms that the last interest rate hike by the Polish central bank is working out.      

Adam Narczewski