Afternoon analysis 18.12.2015

After few days of market enthusiasm, today stock indexes dropped. In spite of sentiment deterioration, the emerging market currencies gained. The zloty increased against the euro and other major currencies.

The Bank of Japan surprised investors with decision to revamp its stimulus. The monetary authorities decided to leave the major parameter to increase the monetary base by 80 trillion yens to reach inflation the 2 percent goal.

However, the central bank decided to buy bonds with longer maturity. The average maturity will be extended from 7-10 years to 7-12 years. The BOJ will increase investment in ETF funds by 300 billion yens. This measure will offset the fact that the BOJ will start to sell stocks accumulated in the previous program. The BOJ is going to sell stocks in the second quarter of 2016.

Investments in real estates were also slightly modified. Moreover, the cheap loans scheme to private sector was extended by one year. And finally, the BOJ decided to lower the quality of assets eligible as collateral. It was due to the fact that the BOJ actively purchased the government bonds, thus they are less available as collateral.

Actions of the BOJ were negatively assessed by investors. Today the Japanese stock market declined, and the yen gained against the euro and the dollar.

Zloty increased

National Bank of Hungary Vice President Marton Nagy said the monetary authorities are going to continue loose monetary in the next year. Yesterday the central bank left interest rates unchanged at record 1.35 percent. In addition, Marton Nagy said the central bank is not going to respond to the Fed's actions. In spite of dovish comments from Marton Nagy, the forint gained against the euro and the dollar.

The zloty gained in this week against all its major currencies. On Friday, the Polish currency extended gains in spite of adverse sentiment in the broad market. Today the stock markets dropped after few days of strong gains.

Reports from the Polish economy supported the zloty. Recent reading were above the forecasts. The labor market has bee strong for a long time (employment and wages increased more than expected and the unemployment rates dropped to the lowest level in 7 years). This factor supported the consumption growth. Moreover, industrial production extended the forecast.

After the Federal Reserve increased interest rates, the EUR/USD moved as expected. The major currency pair dropped to 1.08 from 1.10. However, the emerging market currencies gained against the dollar and the euro, which was surprising. If the tendency holds in the longer term, the zloty may increase, especially against the euro.