Afternoon analysis 11.12.2015

Risk aversion prevailed in the markets. ECB's Benoit Coeure sees limited risk of deflation in the eurozone. The US reports supported the tightening scenario.

Since the surprising ECB meeting at the beginning of December the central bank officials have been very active. Just after the decision on extending asset purchases and lowering interest rates ECB President Mario Draghi explained the central bank's stance. Later Ewald Nowotny and Yves Mersch gave additional speeches.

On Friday Benoit Coeure gave a speech (based on Reuters). The ECB Board Member said the central bank's actions limited the risk of deflation viewed as self-reinforcing expectations of lower prices. In spite of that, a global low inflation remained a problem for the eurozone. The ECB may adjust the asset purchase program, if it is needed. Coeure added, that the ECB takes into account actions of the Federal Reserve.

In the next week the US central bank is expected to raise interest rate by 25 basis points. This factor is responsible for the risk aversion that prevails in the broad market. Earlier, it has been sparked by surprisingly limited ECB actions. In addition, drop in the oil price and mixed data from China limit investor's willingness to buy risky assets.

The November's retail sales supported the tightening scenario in the US. As expected, sales increased 0.2 percent on a monthly basis and the report excluding auto sales increased 0.4 percent. Moreover, producer prices increased more than expected. The PPI inflation increased 0.3 percent and the core PPI inflation was 0.3 percent higher.

Strong risk aversion

The emerging market currencies were under negative pressure. The tendency stems from the drop in oil prices and other commodities. Today the International Energy Agency said that oversupply may increase in the next year. As a result, the oil price may end the week at the lowest level since 2008.

News agencies are reporting on the political crisis in South Africa. Given the situation, the rand dropped more than 10 percent.

The Russian Central Bank left interest rates unchanged at 11 percent. The monetary authorities said the will cut rates in the coming meeting if the inflation rate decelerates. The statement negatively affected the rubble. The Russian currency was additionally pressured by the drop in oil price. As a result, the USD/RUB increased near the record 70 level.

The CSO released data on international trade in October. Since the beginning of the year export increased 6.7 percent and import 3.2 percent. It was less than in the prior month, when it was 6.8 and 3.6 percent, respectively.

On Friday, the zloty was steady at low level. In the next week important report from Poland are scheduled (production, retail sales and inflation). Given the expectations for the Fed to raise rates, the probability of a stronger zloty is rather low.