Afternoon analysis 09.03.2016

The euro lowers before the key meeting of the ECB. The Bank of France cut the GDP forecast. The zloty gained against the euro.

The Bank of France cut the GDP forecast for the first quarter of 2016. The revised forecast was set at 0.3 percent against 0.4 percent, which was reported earlier. It was caused by a deterioration of sentiment among manufacturing companies. The sentiment index was unchanged in service and construction sectors.

The report may suggest that the economic difficulties that hurt the emerging market economies, negatively affect the European exporters. This is another argument for the ECB to increase its monetary stimulus. In this context, yesterday's report from the German industry may be important, as it exceeded expectations. As a result, the reading may suggest that the slowdown may have only been transitory.

All in all, in spite of quite good data from Germany, the assessment of the eurozone economy has deteriorated. The ECB is closely watching inflation. The HICP inflation rate dropped in February to negative 0.2 percent against 0.3 percent in the previous month. The Frankfurt-based institution's inflation goal, is set at almost two percent. Given the situation, the probability of the ECB meeting its inflation target in the mid-term is rather low. As a result, the ECB has to increase the stimulus to fulfill its major obligation. The ECB is expected to cut deposit rates by 10 basis points, and increase the limit of asset purchases by 15 billion euros.

Commodities rebounded

On Tuesday, the commodities market declines. Oil and copper declined together. The price of oil dropped, due to adverse reports from the Energy Information Agency that cited a stubborn oversupply and low prices. However, prices rebounded on Wednesday.

This was due the fact that the major central banks move to a looser policy. Tomorrow, the ECB is expected to increase stimulus. Moreover, the Federal Reserve may announce that it will lower the pace of tightening. Earlier, the Chinese government may increase fiscal stimulus.

As a result, the currencies of commodity-exporting countries has increased. Today, the Russian rouble, the Norwegian crown, and the Canadian dollar increased. The tendency may hold in the long term, if the major central banks move to a more dovish stance.

Stable zloty

Adam Glapiński, from the NBP, said a "more realistic" approach to franc denominated credit is near to be finished (according to PAP). He said that the new solution will comply with the need of preserving the stability of the financial sector. Glapiński said that the project should be implemented soon to eliminate uncertainty.

Adam Glapiński is the major candidate for succession, after Marek Belka's term expires. As a result, his view is rather important. A final solution for the problem will ease some risk in the Polish financial sector. If the solution is broadly accepted, the zloty may gain in the long term.

The zloty remains in a narrow band. On Friday, the MPC will decide on interest rates. According to the market consensus, it will leave rates unchanged. However, if the MPC shows a rather hawkish stance, the zloty may gain. Moreover, the zloty may gain support from the ECB and the Fed.