Afternoon analysis 28.08.2015.

The US report showed stronger consumption. The euro and the dollar steady after a volatile week. The zloty dropped again.

The latest data showed that consumption in the US was strengthened. In July household spending increased 0.3 percent. A result little below the 0.4 percent projected. Last month spending gained 0.3 percent (revised from the 0.2 percent that was previously reported). Household income increased 0.4 percent. It was the fourth gain in a row. A result in line with expectations.

Today's data suggest that consumption may be strong in the third quarter. Revised GDP report was better than the initial estimate. The growth stood at 3.7 percent (annualized) against the 2.3 percent previously reported. The result was due to an improvement in consumption. Consumption accounts for almost 70 percent of the economy.

However, the inflation rated remained tame. The PCE inflation increased 0.1 percent on a monthly basis and 0.3 percent against the previous year. And the core inflation measure rose 0.1 percent and 1.2 percent, respectively. It was the slowest year on year increase in four years. This report is the most important inflation measure for the Federal Reserve.

The markets were not influenced by comments from the Federal Reserve's members during the Jackson Hole symposium. On the one hand, Narayana Kocherlakota, the Minneapolis Fed President, sees no need for a hike and expects more easing of the policy. A more balanced approach was presented by William Dudley from the New York Fed. In contrast, Loretta Mester, the Cleveland Fed President, leans towards the September hike.

Limited volatility

On Friday, volatility was limited in comparison to the earlier part of the week. Given the uncertainty concerning China, investors are reluctant to make significant bets before the weekend. After the collapse on Monday, the Shanghai stock market posted significant gains on Thursday and Friday. There were some rumours that the Chinese authorities intervened in the markets to improve sentiment.

As a result, there is some anxiety whether the market will keep gains if the government refrains from intervening. Moreover, the Jackson Hole symposium poses some risk as some comments may spark volatility.

Oil gave away its gains

On Thursday, we saw a strong rebound of the oil price. The oil price increased above 42 dollars from the 39 dollar level. This factor supported the commodity currencies. As a result, the rubble posted some gains.

Late on Friday, the Russian currency dropped on cheaper oil. The Russian Central Bank will allow the rubble to decline further, according to the Bloomberg survey. The USD/RUB may hit the 80 rouble level before the monetary authorities decide to act.

Today the zloty dropped against all its major pairs. Since the beginning of the week, the Polish currency has been moving down as the Chinese anxiety and the uncertainty concerning the Fed's plan to raise rates pressured the emerging market currencies. Moreover, the latest reports from Poland were mixed. Given the situation, the chance for a stronger zloty is limited.