Afternoon analysis 15.04.2016

, author:

Piotr Lonczak

Profit taking prevailed in the markets on Friday. Solid reports from China did not shore up the sentiment. The zloty is steady at a low level.

The Chinese numbers showed that although the economy is slowing down, there is no crisis. In the first quarter, the GDP growth stood at 6.7 percent on a yearly basis against the 6.8 percent that was expected. Moreover, the March report on production, retail sales and credit supply were quite good.

Earlier the report on industry sentiment and international trade had shown an ongoing improvement. However, all problems have not been resolved; the transition of the economic model is well managed by the government and the central bank. Given the situation, a possible Chinese crisis is becoming a less important risk factor to the economy.

Still, Chinese optimism did not help the markets. Losses prevailed in the session on Friday.

Information concerning China is important for the Federal Reserve. Tangible improvement in the second largest world economy may lead to rising probability of interest rate hikes and may support the dollar. Nevertheless, this factor did not support the dollar.

In contrast, the factor which negatively affected the dollar was the report on industrial production. In March, production dropped 0.6 percent on a monthly basis, and the prior period data was revised down. Still, the dollar's drop was rather limited.

Uncertain agreement

The commodity market was also in correction mode. This could have been caused by the uncertainty regarding the Doha meeting on Sunday. An agreement on output freeze is expected to be brokered on Sunday. However, there are still many questions on whether the final agreement will be signed.

If there is no agreement, oil prices may decline severely. A similar scenario would negatively affect commodity currencies. As a result, the broad market sentiment would be negatively affected.

Zloty was steady

The COS released the report on international trade. In the January-February period, export increased 4.1 percent on a yearly basis. Import rose 3.2 percent. As a result, the trade surplus stood at 5.7 billion zlotys. The February report was clearly better than the prior release. The data confirmed an ongoing expansion in the first quarter.

On Friday, the zloty stabilized after a poor week. In the last five days, the zloty posted losses against all its major pairs. The zloty has been weaker than the forint. The situation may suggest that the Polish currency will be weaker in the near future.

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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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