Afternoon analysis 09.05.2016:
Currency markets stabilize after high volatility in the prior week. The Chinese data negatively affect the commodity markets. The zloty slightly up before the report from Poland and the decision of the Moody's agency.
Friday's data from the US labor market disappointed. The report showed that employment in non-farming sector increased 160k against the 200k forecast. The data showed that the slowdown has broader scope. Earlier, the labor market data suggested a strong expansion.
Comments from Fed members just after the release suggested that the scenario of two hikes this year still holds (more on the issue in the previous commentary). In this context an important issue will be the outcome of the EU referendum in the UK. If the nation eventually stays in the EU, the probability of hikes will increase. If the US reports improve simultaneously, the dollar may rise further.
China's data missed the forecast. The reports released during the weekend showed drop in trade turnover. In April export dropped 1.8 percent against the negative 1 percent forecast. Import dropped 10.9 percent against the forecast negative 5 percent. As a result, the surplus dropped to 45.6 billion dollars against the 40 billion dollars forecast.
On Monday the commodity prices dropped further. The copper price dropped to the lowest level in a month. The oil price also declined. As a result, the commodity currencies were under a negative pressure.
The zloty is waiting for reports
In the second part of the week important reports from Poland are scheduled. On Thursday the CSO will release data on inflation in April. According to the flash estimate deflation stood at 1.1 percent against 0.9 percent in the prior month. The forecast was at 1 percent before the flash release.
On Friday data on the GDP growth is expected. According to market consensus the GDP growth slowed down to 3.4 percent in the first quarter. In fourth quarter of 2015 the GDP growth stood at 4.3 percent (revised up from 3.9 percent). Factors responsible for the slowdown are weak reading of industrial production and retail sales. In contrast, the international trade data and labor market reports were quite good.
The latest slowdown may push the MPC to alter its stance. Last time the MPC was not willing to suggest a similar solution. The situation could have been caused by the fact that currently the monetary authorities are in the transition process which will end in July when the NBP President is replaced. When the process is finished, the monetary authorities may be more eager to address the current economic developments.
Although the domestic factors are quite important for the zloty, the most important factor will be the review of the Moody's rating on Friday. The market expectations are for the agency to lower Poland's grade. Although this factor will rather not affect the zloty in the same extent as the rating cut by the S&P in January, it may negatively influence the currency in future. Given the situation, the probability of a stronger zloty is currently limited.
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