After days of quiet, storm clouds return (Daily analysis 29.09.2021)

29 Sep 2021 9:07|Bartosz Sawicki

China's slowing economic growth, rising energy prices that could crush the global economy, the unresolved problems of Evergrande, a reshuffling of bond markets and fears of an epidemic. The list of issues is long, and it is difficult to say which factors are having the most significant impact on cooling investment sentiment.

Fears of a slowdown in economic growth combined with ongoing high inflation have returned with renewed force to world markets. This so-called stagflationary scenario is running high and risky currencies, and assets are being sold off. An important element of this is the rise in government bond yields, which weighs most heavily on technology companies. The Nasdaq index plunged almost 3% yesterday, significantly more than other stock market averages on Wall Street. On the other hand, the dollar is strong, gaining against virtually all currencies this week, with the strongest appreciation against representatives of the world of emerging economies. The EUR/USD pair falls below 1.17 and is testing the August lows.

A well-known story takes place in this unfavourable environment: the weak and chimerical zloty is under firm pressure. Its weakness is mainly due to extremely low interest rates and the benign stance of the Monetary Policy Council combined with high and rising inflation. The situation is also not supported by the deterioration in the balance of payments. The long period of huge surpluses on the current account may have discouraged some market participants with a more long-term orientation from maintaining positions that assume the weakening of the zloty, but today this argument no longer works.

The forint is weaker, as it was hit by the central bank's lower-than-expected interest rate hike last week. The pound and Swedish krona, one of the main currencies more sensitive to the deterioration in market sentiment, are also losing strongly. In turn, the bull market in energy commodities has extended its protective umbrella over the Russian rouble and the Canadian dollar. On the other hand, the Norwegian krone is retreating sharply from multi-month highs (the EUR/NOK lows).

29 Sep 2021 9:07|Bartosz Sawicki

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 acknowledgement of the source is prohibited.

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