Afternoon analysis 13.01.2016

A positive surprise in China improved the market sentiment. The new Monetary Policy Members less eager to cut the interest rates than it was previously thought. The zloty pared losses after the NBP report.

Today's data from China exceeded the forecast. In December export dropped only 1.4 percent and import 7.6 percent. The expectations were for minus 8 and 12 percent, respectively. The trade surplus was 60.1 billion dollars - more than 53 billion dollars that were forecast. Moreover, the government managed to stabilize yuan which was reflected by narrowing the difference between onshore and offshore currency exchange.

A drop in the Chinese trade turnover was smaller than it was expected. It was clearly positive news. If incoming reports confirms a similar tendency, the situation will stabilize in the next months. As a result, the severity of Chinese turmoil and its impact on the global economy will be significantly lower than it was expected.

Moreover, the data showed that the dependency between the economic development and the financial markets performance is looser than it was thought. Given the situation, the turmoil on the Chinese market in the last few weeks will not result in an economic slowdown.

ECB will buy Greek debt?

The European Central Bank has to be certain that Greece will keep its bailout commitments before deciding on resuming country's bond purchases. Moreover, even if the weaver is resumed, it will not result in an automatic resume of buying. An opinion was stated by ECB President Mario Draghi (according to Reuters).

Greece hopes the central bank will buy its debt, which will help to save on debt financing. However, a chance for a similar decision will appear after review of the nation progress in fulfilling bailout commitments. The ECB decision to buy the Greek bonds will be next important step on a path to end the eurozone debt crisis.

Industrial production in the monetary union did not meet the forecast. It increased 1.1 percent on a yearly basis. The forecast was for 1.3 percent against 2 percent in the prior month. However, improvement in the market sentiment resulted in drop of the EUR/USD.

The zloty tried to rebound

The senate approved new three members of the Monetary Policy Council - Eugeniusz Gatnar, Jerzy Kropiwnicki and Marek Chrzanowski. The lower chamber of parliament will soon approve Grazyna Ancyparowicz and Eryk Lon.

Given the latest remarks made by the new MPC member, the probability of the additional interest rate cuts dropped. Eugeniusz Gatnar said the monetary authorities should wait for effects from the government's fiscal decision and interest rate modification should be considered in the end of the year (according to ISBnews). Also Jerzy Kropiwnicki is not eager to cut rates (according to ISBnews). Earlier Grazyna Ancyparowicz said there is no need for additional cuts.

The zloty was additionally supported by the NBP report. The current account surplus stood at 620 million euros against 300 million euro deficit that was forecast. Moreover, the trade surplus was 756 million euros.

Lower probability of additional interest rate cuts will support the zloty in the longer term. In the short term, more important factor will be the global market sentiment. Given the limited risk aversion, the zloty posted gains on Wednesday. However, the extent of the move was relatively narrow. The zloty remained at the low level and the probability of a stronger rebound is still rather small.