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Afternoon analysis 15.09.2014

15 Sept 2014 17:34|Artur Wiszniewski

Consumer inflation in Poland supports the case for interest rates to be cut. The OECD trimmed its growth projections for major economies and pressed the ECB to do more. The Ukrainian crisis increased risk-aversion. Industrial production pushed the dollar lower.

The Organization for Economic Cooperation and Development cut its forecasts for major world economies in 2014-15. The OECD lowered growth projection of the United Stated: the GDP is expected to grow at a pace of 2.1 percent in 2014, down from 2.6 percent in May forecast. In 2015 growth is projected to rise to 3.1 percent – 0.4 percentage point lower than in previous forecast.

Forecasts for European economies were also lowered. The OECD trimmed severely growth projection for Italy – the economy is expected to shrink by 0.4 percent in 2014. The projection was cut by 0.9 percentage point. The GDP growth is expected to increase to 0.1 percent in 2015. In addition, forecasts for major European economies were lowered – for France (minus 0.5 pp.), Germany (minus 0.4 pp.) and the United Kingdom (minus 0.1 pp.). The forecast for the euro zone was lowered by 0.4 pp.

The OECD pressed the European Central Bank to do more to ward off deflation risk and spur growth. Although the OECD praised recent actions of the ECB, it expects additional measures – namely the use of quantitative easing (QE).

In September the European Central Bank lowered interest rates and introduced asset-backed securities purchases. In addition, the central bank will allot TLTRO for the first time in this week to bolster credit flow to private sector.

The ECB President Mario Draghi didn't introduce quantitative easing as in the United States, the United Kingdom or Japan due to defiance from the Bundesbank. The German central bank argued that government bond purchases would be a form of public debt financing, what the ECB is not allowed to do under current legal framework.

The dollar pushed lower by data

Industrial production in the United States didn't meet the expectations. It fell 0.1 percent from the previous month in August. The result was lower than 0.3 percent expected. In July industrial production rose 0.2 percent (revised from 0.4 percent).

The dollar was weakened by production data. Although the US currency remained higher against the euro today. The main factor for the dollar is the meeting of Federal Reserve on Wednesday, that may reveal a more hawkish stance of the central bank.

The zloty under pressure of risk-aversion

The Ukrainian crisis remained an important risk factor for the markets. In recent days we observed rising discrepancies in Kiev. The view of progress made in relations with Moscow is different among the President Petro Poroshenko and the Prime Minister Arseniy Yatsenyuk. Yatsenyuk said that the Kremlin is trying to soften western countries by creating impression that the progress is made. His statement was criticized by Poroshenko.

Parliamentary elections in Ukraine are scheduled on 26 October. Currently we can observe frictions between major political parties, what may create additional uncertainty even after permanent peace agreement with Moscow is accomplished. It is due to the fact, that part of radical politicians claim, that they won't accept any agreement that gives away authority in Donbas.

The consumer inflation growth in Poland stood at minus 0.3 percent on a yearly basis – the Statistical Central Office said today. It was in line with expectations.

The inflation report affirmed expectations for interest rates cut in October. The current scenario is the Monetary Policy Council to cut interest rates by 25 basis points on its next meeting and the total amount of cuts will be at least 50 basis points. Although some members of the MPC said that bigger cuts are needed.

The zloty remained at its lows and the volatility was tamed against the euro. In turn, the Polish currency fell against the dollar due to increased risk-aversion caused by poor OECD forecasts, the Ukrainian crisis, disappointing data from China and uncertainty surrounding the Scottish referendum (a wider view in our morning commentary). In addition, the dollar is supported by shift in expectations for the Fed to drop accommodative monetary policy. The current developments in the polish zloty market will probably remain valid in the near term.

15 Sept 2014 17:34|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:

15 Sept 2014 12:33

Daily analysis 15.09.2014

12 Sept 2014 17:17

Afternoon analysis 12.09.2014

12 Sept 2014 12:32

Daily analysis 12.09.2014

11 Sept 2014 16:26

Afternoon analysis 11.09.2014

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