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Afternoon analysis 24.11.2015

24 Nov 2015 16:42|Marcin Lipka

On Tuesday the risk aversion prevailed in the markets. The euro went up against the dollar after economic reports. The zloty was rather steady near its low level.

Today Turkey downed the Russian plane near the Syrian border. The event resulted in a spike in risk aversion in the financial markets. As a result, investors sold high-yielding assets and moved to safe-haven assets.

Given the situation, the European and the US markets dropped. The German market declined almost 2 percent and the US futures moved down about 0.6 percent. In Warsaw, the WIG20 Index dropped more than 2 percent.

A similar situation prevailed in the bond market. Yields on the German bonds dropped below minus 0.4 percent for the first time in history and the US bond also gained. Yield on the US papers dropped to 2.21 percent - the lowest level in three weeks.

Lira and rouble

The currencies of countries involved in the incident dropped significantly. The lira dropped almost 1 percent against the dollar and the rouble declined about 0.5 percent. In contrast, the currencies perceived as safe-havens increased. The Swiss franc and the Japanese yen posted gains.

The tendency will be conditioned on the further developments. The comments from Moscow were severe, which suggests the tensions will hold for a longer time. All in all, we expect that this factor will affect the markets only in the short term and its impact will diminish in the longer term.

Today's economic reports from the eurozone and the United States did not change the expectations concerning the monetary policy. The revised data on the US GDP showed the economy expanded 2.1 percent against the 2 percent that was forecast. It was in line with the projection. In contrast, the Ifo index from Germany was better that forecast. It was additional signal that the emerging market economies slowdown is not hurting Germany.

Today there was no factors strong enough to alter the expectations before the ECB and the fed decisions on interest rates. As a result, the EUR/USD was steady at the low level near 1.0650.

Steady zloty

On Tuesday the zloty was relatively steady. The Polish currency was not affected by the heightened risk aversion. The dollar stood little below 4 zloty. The US currency was near the highest level in more than 11 years. The zloty gained against the pound. The move was caused by the pound's drop in the last three days. However, the pound stayed above the 6 zloty level. It was the highest level in more than a decade.

Rising divergence among the European Central Bank and the Federal Reserve will determine the situation in the currency market in the longer term. As a result, December may bring spike in volatility after the major central banks will start to change policy. Moreover, heightened risk aversion is not helping the emerging market currencies.

As a result, it is quite likely that the zloty will stay at the low level in the longer term. The probability of a stronger zloty is currently limited.

24 Nov 2015 16:42|Marcin Lipka

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:

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