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Afternoon analysis 12.02.2016

12 Feb 2016 16:41|Artur Wiszniewski

The dollar increased after today's data. Weak data from the eurozone increased the probability of additional actions from the ECB. The zloty was steady at low level. Solid report on the GDP was clouded by the inflation report.

In December, industrial production in the eurozone missed the forecast. It dropped 1.3 percent on a yearly basis. The forecast was for an 0.8 percent growth rate. In the prior month, production increased 1.4 percent (revised from 1.1 percent).

Industry has negatively affected the GDP growth. In the fourth quarter, the economy expanded 0.3 percent from the prior quarter and 1.5 percent on a yearly basis. It was in line with the forecast. In the prior quarter, the economy rose 0.3 percent and 1.6 percent, accordingly.

The latest reports from the eurozone countries were rather disappointing. In particular, the German economy was below the expectations as industry slowed down. It was confirmed by the sentiment indexes (Ifo, PMI, Sentix).

Given the poor performance of the eurozone countries, and the situation in the commodity markets (the oil price hit new lows at near 26 dollars), the probability of the ECB meeting its inflation goal is very low. A risk factor for the inflation outlook is a weakness in the global economy, particularly in China and other emerging markets. In the backdrop there is uncertainty concerning the European banking sector.

Currently, inflation in the eurozone is at 0.4 percent against the ECB's goal of nearly 2 percent. It is very likely the ECB will add to the stimulus. Tools considered are a lower deposit rate and an increase of the limit of monthly asset purchases. If the scenario is fulfilled, the risk assets may gain.

Stronger dollar

Today's data from the US supported the dollar. Retail sales increased 0.2 percent, which was more than expected. The data excluding transportation equipment increased 0.1 percent, which was also more than expected. Moreover, the numbers from the prior month were revised.

This week, Fed President Janet Yellen said that although the central bank is going to raise rates, it sees several risk factors for the US economy. As a result, the probability of an interest rate hike this year has dropped to zero.

Thus, the dollar declined. The EUR/USD increased to the highest level since the end of October 2015. After today's data, the situation has changed. The consumption growth may support the inflation rate. As a result, the probability of an interest rate hike eventually increased. Given the situation, the dollar gained in the second part of the session.

Zloty at low level

Poland noted a trade surplus in 2015. The CSO said it stood at 15.5 billion zlotys. Export increased 7.8 percent and import at 4.9 percent. Moreover, the NBP said the current account deficit stood at 3.3 billion zlotys. These numbers may support the zloty in the longer term. Moreover, the GDP data was better than the forecast.

In contrast, the inflation data disappointed. The price index was 0.7 percent lower on an annual basis against the negative 0.5 percent forecast. As a result, the Monetary Policy Council may consider interest rate cuts, which will hurt the zloty.

On Friday, the volatility of the zloty was limited. The Polish currency did not exploit a sentiment improvement to increase. The probability of a stronger zloty remains limited.

12 Feb 2016 16:41|Artur Wiszniewski

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:

11 Feb 2016 17:08

Afternoon analysis 11.02.2016

11 Feb 2016 13:36

Daily analysis 11.02.2016

10 Feb 2016 17:20

Afternoon analysis 10.02.2016

10 Feb 2016 13:13

Daily analysis 10.02.2016

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