Afternoon analysis 15.09.2015

, author:

Piotr Lonczak

The US reports did not influence the market before the Fed's decision. The data from Germany missed the forecast. Deflation in Poland lower than expected. The zloty increased against all its major pairs.

The German report missed the forecast. The ZEW index, a measure that tracks investor's expectations regarding the economic situation within six months, was below the expected level. In September it dropped to 12.1 from the 25 points level in the prior month. It was the sixth decline in a row. The forecast was for the 18 point level.

A weaker than expected result was due to uncertainty concerning the emerging market economies. The Chinese crisis may lead to a broad based slowdown in the global economy. Given a similar situation, the export oriented economy will suffer from a decline in external demand. In the second quarter it was the major growth engine, and in the next its influence may be limited. As a result, the GDP growth may be slower in spite of quite good internal situation.

Reports before the Fed

The retail sales in the US missed the forecast. In August sales excluding transportation equipment increased 0.1 percent and overall data showed an increase of 0.2 percent. The forecasts were for the 0.2 percent and the 0.3 percent, respectively. The reports were considered neutral as the prior months readings were revised up.

Later, the New York Empire State Index missed the forecast. The index stood at minus 14.7 points against the minus 14.9 points in the preceding month. The forecast was for the minus 0.5 level.

And finally, industrial production was the last important report today. The report came in a similar fashion as the retail sales data. Although the August report missed the forecast, the prior month report was revised up. Production dropped 0.4 percent on a monthly basis against the minus 0.2 percent that was forecast.

Today's reports did not affect the markets as they will not alter the Federal Reserve decision. As a result, the EUR/USD moved in a tight streak. The major currency pair hovered above 1.13. Currently, the most probable scenario is the Fed will keep rates on hold and promise a hike before the year end.

Zero inflation rate

In August the inflation in the UK stood at the zero level. It was caused by low fuel prices and drop in clothing prices. Last month, the inflation rate stood at 0.1 percent on a yearly basis. As expected, the core inflation rate dropped to 1 percent from the 1.2 percent level in the prior month.

The pound was calm as the reports were in line with the forecasts. Low inflation is not surprising for the Bank of England as it expected a rebound in prices in the turn of the year. Then a discussion on when to increase rates will probably launch.

A stronger zloty

The Chinese stock market remained unstable. The Shanghai Composite Index dropped 3.5 percent (the second drop in a row). Declines were spurred by the information about money outflow from investment funds. Although the impact of this factor on risk assets is limited today, it the long term it will be still significant.

Deflation in Poland was lower than expected. The inflation rate stood at minus 0.6 percent against the preceding year against the minus 0.7 percent that was expected. Last month inflation stood at minus 0.7 percent. The deflation was due to drop in fuel and food prices. Today's data will not affect the MPC expectations on interest rates.

The zloty gained against all its major pairs. However, the key factor for the zloty will be the FOMC decision on Thursday. Until then the zloty will remain in a tight streak. No hike will probable result in a stronger zloty in the short term.

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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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