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Afternoon analysis 01.02.2016

1 Feb 2016 16:54|Marcin Lipka

Risk aversion increase is pushing the EUR/USD during the afternoon session. Nowotny and Coeure on ECB monetary policy. The zloty gained some value in the beginning of the weak despite negative sentiment.

The data and comments from the ECB

The reading from the US Department of Commerce published in the afternoon weren't really surprising, especially if we combine them with the revisions from the previous months. Personal income rose slightly above expectations in December (+0.3% vs +0.2%), while spending was flat with consensus at +0.1%, However combining the data with November revision (from +0.3% to +0.5%) the readings is close to the median expectations.

Similar situation was observed in the PCE inflation. The prices on m/m basis dropped 0.1% while expectations were at no change, however, the reading for November was revised upwards and the y/y reading was in line with consensus topping +0.6%. Moreover the core PCE inflation on the monthly basis was slightly below consensus but the yearly data matched the economists' expectations and rose 1.4%. We can conclude that the data should be neutral for the Federal Reserve.

Some interesting comments were published today after the ECB members meeting in Budapest. Ewald Nowotny commented on the December events when markets “clearly expected too much and I think that should give them certain lesson”. Asked by reporters on a possible cut in March, Nowotny replied that “it is much too early to have a discussion on that”.

In late afternoon there’s a potentially interesting speech delivered by Mario Draghi. However, it is hard to expect any breakthrough regarding the ECB chief comments as the last MPC statement was dovish and it would be hard to beat it. In the afternoon there is also an event with Stanley Fischer (http://www.cfr.org/economics/conversation-stanley-fischer/p37484 ). All comments from the vice chair would be widely commented especially any suggestions regarding the changes in the pace of interest rate hikes. If he pushes for some global turmoil discussion which can restrain the US growth it might be bearish for the dollar.

The MPC meeting

Today we are observing some interesting events on the zloty. The Polish currency has been gaining value despite some risk aversion sentiment and weak domestic PMI publication. It is, however, hard to expect that similar situation can be repeated often. Perhaps today some portfolio investors concluded that after the S&P rating cut it is worth to open some long positions on high yielding Polish bond and use the opportunity also from multi-year low zloty valuations.

This move could be also supported by the BoJ decision and lower odds for the interest rate hike in the US which loosened some monetary conditions around the world. It is worth noting, however, that similar situation won't happen often in the future. The zloty is still expected to benefited from risk on sentiment and be under pressure when the global conditions worsen.

Tomorrow the two-day MPC meeting starts. Only 8 out of 10 seats would be occupied due to the regular shifts in its composition. The odds for any policy changes are slim due to expectations for March “Inflation Report” overall weakness of the zloty and limited number of officials.


1 Feb 2016 16:54|Marcin Lipka

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.

See also:

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