Afternoon analysis 10.03.2015

, author:

Piotr Lonczak

Spike in risk aversion has pushed risk assets lower. The zloty plunged against all its major pair. The dollar hit new highs.

A correction in the stock markets that has stated in the previous week, currently gains momentum. The outlook for the Federal Reserve rising rates in mid 2015 is discouraging investors from buying stocks in a situation, when stock indexes are close to record highs.

On Monday the atmosphere was quite stable due to the information that the European Central Bank launched its bond purchasing program. This factor has been priced in, and the final announcement of the European QE shifted investors' focus on the expectations for the Fed rising rates.

The US labor market data released on Friday exceeded expectations. Companies added 295k new workers – more than forecast. This means that the labor market has kept momentum after 2014 that was the best year in last fifteen years.

In turn, investors give little attention to remarks of the ECB president Mario Draghi, who said the central bank is limited only by the deposit rate in considering buying bonds with negative yields. Currently the rate is set at minus 0.2 percent – thus the ECB has vast space to pursue purchases. Moreover, the ECB president said that the QE may be extended, if needed.

The assessment of market sentiment shows that investors give more attention to decision of the Fed that is going to tighten its stance, than to the ECB that is easing its policy. As a result, the risk aversion has mounted in the markets.

The EUR/USD dropped further after some relief on Monday. The major currency pair dropped as low as 1.0722 – the lowest level since April 2003.

Draghi pressed Greece

The euro was pressured by the return of Greek problems. Two weeks ago the country agreed a reform plan in exchange for extension of financing from bailout program. The solution has been aimed at providing financing for Athens for next four months.

However, last comments from Brussels are rather negative. The European officials are not satisfied with the Greek offer. Moreover, the ECB president Mario Draghi said that the country should cooperate with Troika, if it wants to get next payment disbursement (according to Bloomberg unofficial sources). This risk factor may influence the broad market, if Syriza government tries to test EU politicians.

Zloty sell-off

Volatility spike hit emerging markets currencies. All CEE currencies dropped against the dollar. The zloty was heavily hit – the USD/PLN gained more than 2 percent. The forint and Czech koruna and even Russian rubble dropped less. The decline against the euro was however smaller.

The USD/PLN exceeded 3.87 – the highest level since February 2009, when it hit 3.91. The pound gained to 5.84 – the highest since February 2007.

The zloty's drop against the dollar and pound doesn't surprise. However, the pace of the move is surprising. Nevertheless, the zloty still has the potential to gain against the euro and frank, if the sentiment in the broad market is favorable for risk assets.

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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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