Afternoon analysis 22.12.2015

Negative sentiment prevailed in the markets. The GDP growth in the United States was little above the forecast. In spite of an adverse market environment the zloty extended gains.

In the third quarter the US economy expanded more than the expectations. The final GDP estimate showed a 2 percent increase against the 1.9 percent that was forecast. However, the GDP growth was lower that 3.9 percent in the April-June period.

Personal consumption was the major factor that supported the GDP growth due to low gasoline prices and very strong labor market. Consumption contribution was at the level of 2 percentage points. Consumption accounts for almost 70 percent of the economy.

Nevertheless, a problem is net export that subtracted 0.3 percentage point from the overall growth. In the prior quarter the factor added 0.2 percentage point to the GDP growth. Thus the situation was clearly worse.

The export growth was limited due to overall deceleration in the global economy. Moreover, a strong dollar is hurting the price competitiveness of the US products, which limits the export growth. In the end, a strong dollar spurs the import growth.

Investment added 0.6 percentage point to the GDP growth. Given the situation, consumption is the major growth engine in the US. Growth potential in the labor market is getting weaker, thus the consumption growth may also be limited. The fact may result is some slowdown in the US economy.

After positive start of the session on Tuesday the second part of the day was rather negative. It was mainly observable in the European markets, but the US futures were also lower. The EUR/USD increased and moved near 1.10.

Although the GDP data did not result in heightened volatility in the markets, the reports that reveal rising problems in the US economy may limit the Federal Reserve's willingness to hike interest rates. At its last meeting the Fed said that hike decisions will be conditioned on data. If the negative tendency holds, the probability of interest rate increases will drop.

Surprising zloty

Since the beginning of week the zloty gained against its all major pairs. The Polish currency managed to extend gains from the prior week. What is important, the zloty gained even in the adverse market environment.

In the prior week the factors that supported the Polish currency were surprisingly good economic readings. The reports on labor market, industrial production and retail sales extended the expectations. Moreover, the government said it plans to keep deficit at 2.8 percent GDP, a statement that limits the concerns on the fiscal stability.

And finally, new members proposed to the Monetary Policy Council were less dovish than it was expected (more in the prior commentary). Given the situation, the factors responsible for the zloty's weakness in the fourth quarter has been softened. As a result, the zloty gained additional potential to recoup recent declines.