Afternoon analysis 27.08.2015

The US GDP report supported the dollar. China's authorities intervened in the stock market. The zloty susceptible to risk aversion.

In the second quarter the US economy expansion was stronger than it was previously anticipated. The GDP growth stood at 3.7 percent (annualized) against the 2.3 percent reported earlier. A better result was due to increase in investment that was stronger. Moreover, consumption was also higher than previously estimated. The consumption accounts for almost 70 percent of the economy.

In addition, the unemployment claims report exceeded the expectations. The number of unemployment claims dropped to 271k from last week's 277k. The forecast was for 274k. A result below 300k signals an ongoing expansion in the labor market.

Recent reports from the US supported the dollar. The US currency has not been stopped by the comments from the Fed members. The New York Fed President William Dudley said that September is less compelling than it was a few weeks before for an interest rate hike. In contrast, Esther George from the Kansas Fed said that although a hike is necessary, the current market environment complicates a similar decision.

The EUR/USD dropped for the third day in a row. The major currency pair dropped to 1.12 from 1.17 on Monday. After a very good session on Wednesday, the US stock market extended the increase on good reports and a deferred outlook for interest rate hikes.

European credit

In July, credit for the private sector in the eurozone accelerated. It increased 0.9 percent against the previous year. A result better than the 0.7 percent projected. However, the previous month reading was revised down to 0.2 percent from the 0.6 percent reported earlier. The money supply growth stood at 5.3 percent.

Since March, the numbers on private credit have shown an increasing demand for credit. This factor signals that the pillar of the economic rebound is getting stronger. Recently, there were some rumours that in the face of the Chinese crisis, the European Central Bank may introduce additional tools to help the economy. However, the ECB members did not see a need for similar actions.

Ukraine with debt writedown

A broad improvement in the market sentiment was caused by the rebound in the Shanghai stock exchange. However, after the session was finished, Bloomberg informed that the Chinese authorities intervened in the market to stop declines. In addition, the government sold the US bonds to raise the dollar needed for currency interventions.

If the rumours are confirmed, it will show that the basis for the current rebound is very weak. Unofficial sources say that the government's goal was to calm the markets before the celebration of the World War II victory anniversary.

After five months of talks Ukraine secured a debt writedown. The face value of the outstanding debt will be reduced by 20 percent (about 3.6 billion dollars). Moreover, the debt maturity will be extended. In exchange, the average interest will increase to 7.75 percent from the current 7.20 percent level.

The zloty did not exploit the improvement in the market sentiment. The Polish currency dropped against all its major pairs. There is little chance for a stronger zloty this week.