Afternoon analysis 25.09.2014

The euro hit new lows as president Draghi suggests additional measures. Private credit in euro zone fell again. The zloty dropped against its major pairs.

Thursday was very good for the dollar. The US currency rose against the euro at its highest level since November 2012.

Before noon the euro was weakened by Mario Draghi suggesting that the European Central Bank may use full blown quantitative easing – what means that the ECB would buy government bonds. In addition, market participant question ECB's ability to expand its balance sheet by one trillion euro without using the QE (a broader view on this in our morning commentary).

Private credit fades despite ECB's effort to revive demand for loans. The ECB informed that private credit fell 1.5 percent on a yearly basis in August, after dropping 1.6 percent in the previous month. It was in line with expectations. M3 money supply in euro zone rose 2 percent – slightly more than 1.9 percent expected.

In turn, the US data was supportive for the dollar. The number of unemployment claims was 293,000, up form 281,000 in the previous week, but lower than 300,000 projected according to Bloomberg.

Today's data showed that the labor market is strong. It is an additional argument for hawkish part of the Federal Open Market Committee to push on interest rates hikes in the next year. In September Fed's median forecast of interest rate in 2015 was increased to 1.375 percent from 1.125 percent. In addition, yesterday's data on new homes sales was at its highest in six years, what also reflected the strength of the US economy.

The durable orders data was slightly below expectations. The report showed that orders fell 18.5 percent from the previous month after rising 22.5 percent last time. The forecast was minus 17.1 percent. High volatility of the data was caused by a one-time factor – in the previous month there was exceptionally high number of orders for commercial planes. Conversely, orders for durable goods excluding aircraft rose 0.7 percent, up from minus 0.5 percent (revised from minus 0.8 percent).

The zloty under pressure

The Polish minister for finance Mateusz Szczurek said on television TVN BIŚ that inflation will turn positive in the last two months of the year, but the price growth will be subdued and will remain below 1 percent in the first quarter of 2015. With regard to lowering the GDP forecast Mateusz Szczurek said that the weakness of the European countries is more important for the Polish economy that the Ukrainian crisis. The government cut GDP forecast in budget bill to 3.4 percent form 3.8 percent previously estimated. The average inflation growth is estimated at 1.2 percent.

Easing of tensions in Ukraine didn't support appetite for risky assets. Today the Ukrainian President Petro Poroshenko said that the worst part of the war is over. His statement is an important message that the crisis is closing to the end. In turn, the Prime Minister Arseniy Yatsenyuk said yesterday during the UN summit, that western countries should keep sanctions against Russia until Kiev reclaims full control over its territories seized by Russia.

The view of the Ukrainian president and prime minster differs. It may result in political clash in Kiev, what will probably destabilize the country after the fighting is over. But it will not be important factor for markets, provided Russia stays neutral.

The zloty fell against its major pairs. The Polish currency didn't exploit weakness of the euro. The zloty was under pressure of the deteriorated market sentiment (the S&P500 fell more than 1 percent).