Afternoon analysis 11.05.2016

Risk aversion prevailed in the markets. Rebound in commodity prices helped the Russian rubble. The zloty remained at the low level. Expectations before the decision of Moody's.

On Wednesday the market sentiment deteriorated. However, the scale of losses was limited. It was the first drop in three days.

Today's data from the UK industry revealed some slowdown. Production declined 1.9 percent on a yearly basis. A result in line with expectations. Still, the prior month data was revised up to negative 1.6 percent from the initially reported negative 1.8 percent. Last week, the industrial PMI index dropped to the level signaling a slowdown. A similar gauge for service sector also revealed some deterioration.

The latest data from the UK showed deterioration of the economic situation. It could have been caused by rising uncertainty before the Brexit referendum. The Bank of England said in its latest report that the heightened risk has been negatively affecting the economy for some time. All in all, the pound's drop was very brief, and the currency eventually increased against the dollar.

Weaker dollar

On Wednesday the dollar posted a broad decline. The EUR/USD increased about 0.4 percent. The US currency was lower against the British pound, the Swiss franc and the Japanese yen.

The weakness of dollar let the commodity prices to cut losses. Copper rebounded from the lowest level in a month. Moreover, the oil price increased. As a result, the commodity currencies increased. The Russian rubble posted gains against the dollar. The USD/RUB dropped 0.8 percent.

Zloty remained at the low level

The Moody's agency is expected to release Poland's rating revision on Friday. Today the PAP agency published analysts' expectations, which were quite vague. Until then, the market expectations had been for a cut. In the survey, eleven analysts among 19 expected a cut. The rest of them predicted that Moody's will lower rating's outlook without cutting the grade.

Comments from MPC member Eryk Łon did not affect the zloty. He said that lower rates would be appropriate, but currently there is not a right moment for a cut. The MPC member said also, that the latest data from industry were disturbing.

On Thursday the CSO will release the inflation report. The flash estimate showed deflation increased to 1.1 percent against the 1 percent that was forecast. And on Friday the GDP report is scheduled. According to market expectations the growth stood at 3.4 percent in the first quarter against 4.3 percent expansion in the prior period.

On Wednesday the zloty was steady. The Polish currency moved in a narrow range before the decision of Moody's on Friday. Currently, the probability of a stronger zloty is limited.