Afternoon analysis 02.11.2015

The euro did not exploit solid reports from the economy. Information from China and Turkey may limit risk aversion. The zloty was steady in spite of weak reports.

The latest data from the eurozone has been quite good. Today's final PMI reports showed broad improvement in the economic situation (more on the issue in the previous commentary). Especially Germany and Italy posted solid results. In addition, in the previous week the unemployment rate dropped more than expected. Moreover, inflation was higher than the forecast.

Data improvement has been observed after the discussion on the quantitative easing extension started. The scenario of the second QE in the eurozone was portrayed during the October press conference after the rates decision. The European Central Bank President Mario Draghi said that the monetary authorities will re-examine the QE in December. However, other ECB members had previously made similar statements.

An interview with Mario Draghi was published in the Il Sole 24 Ore paper over the weekend. The ECB chief presented a rather neutral stance. Regarding the QE extension and lower deposit rate he said that nothing has been decided. Although a similar stance is understandable, Draghi's remarks were not as dovish as during the press conference.

Ewald Nowotny, from the ECB, presented a similar stance. He stressed the need for patience and a calm assessment of the economic situation. Nowotny said that there were no decisions on any additional moves.

Neutral comments from the ECB members coupled with data improvement limit the probability of the QE extension. The EUR/USD was quite steady today, but in the second part of the day the euro eventually increased. The situation did not change after the US reports that were near the forecasts.

Zloty resumed decline

The latest news from emerging market countries were rather positive. The AKP party's win in Turkey increased the chance for political stabilization in the country. As a result, the lira and the Turkish stock market increased (more in the previous commentary).

Moreover, information from China gave a basis for optimism. Although the PMI index signaled a drop in activity, it was higher than in the prior month. In contrast, clearly positive information was that the Chinese government is going to soften capital control.

However, the zloty did not exploit the opportunity to extend its winning streak. The Polish currency was negatively affected by the economic reports. In October, the PMI index increased to 52.2 from 50.9 in the prior month. However, the reading was slightly worse than the forecast, thus it did not help the zloty. Moreover, the inflation rate was lower than expected. It stood at minus 0.8 percent against the 0.7 percent that was predicted.

The zloty still remains under the influence of political risk. This factor was supported by statements of the winning party lawmakers, who see no risk in a higher deficit if needed. Given the situation, the probability of a zloty rebound is limited.