Afternoon analysis 11.04.2016

, author:

Piotr Lonczak

Market sentiment improved on Monday. The EUR/USD stabilized in a narrow range. The zloty exploited an opportunity to gain. Dovish comments from the MPC did not affect the zloty.

On Monday, a positive sentiment prevailed in the markets. Stocks and commodities gained. The factor that added to positive sentiment was a broad strengthening of the pound. The sterling recouped its losses that were incurred due to anxiety that the UK may leave the EU. However, today there was no factor that would change the situation in the UK, thus the move may be only a speculative rebound.

After a brief decline, the oil price resumed gains. In the morning, the commodity dropped due to the information that Iraq increased the output to a record 4.55 million barrels per day (Bloomberg source). The nation is the second largest oil producer in the OPEC cartel. As a result, the decision of Baghdad is crucial in the context of the oil producing countries meeting, scheduled April 17. Counties associated in the OPEC cartel and other oil producers will take part in the talks.

Iraq's decision to increase the output limit may limit the probability that there will be a final agreement to freeze the production at the January level. During last few weeks, the expectation that oil producers will cut supply has been the major factor responsible for the oil price rebound.

However, in the second part of the session the commodity resumed gains, as Venezuela said that the major goal of the coming meeting is to limit production. The commodity market was supported due to broad sentiment improvement as the dollar stabilized. The Chinese reports were helpful as the readings showed a rebound in the production prices, which may suggest the economy is gaining pace.

Rising oil prices supported the commodity currencies. The Russian ruble managed to extend its winning streak against the dollar. The Canadian dollar and the Norwegian crown also gained. Eventually, all emerging market currencies posted gains today.

The zloty gained against the euro

Eryk Lon from the MPC, said he is ready to support interest rate cuts if the deflationary pressure holds (source PAP). He said a weaker zloty is positive for the economy. Eryk Lon added he may support unorthodox monetary policy tools if they suit Polish circumstances. Lon asked about a possible rating cut, however, the Moody's agency advised to stay calm.

Moreover, Jerzy Zyzynski from the MPC presented a similarly loose stance (source: Bloomberg). He said that it would be appropriate to start the discussion on interest rate cuts within a few months. In addition, Zyzynski said that in his view, the central bank should support the economy in a larger extent.

In March, the inflation rate stood at negative 0.9 percent which is in line with the flash estimate. The major factor responsible for a drop in prices was cheap gasoline. Moreover, clothing and energy prices declined significantly.

The zloty had a good start to the week. The Polish currency gained against the euro, the dollar and the franc. Only the pound moved higher. Today's comments from the MPC member have not affect the zloty as their view is in the minority. The zloty may stabilize with a tendency to gain.

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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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