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Afternoon analysis 29.01.2015

29 Jan 2015 17:29|Artur Wiszniewski

Greek financial sector pressured by the anxiety due to Syriza government first actions. The zloty lifted up against the frank and other major currencies. The US labor market in a good shape. The ECB sees improvement in credit conditions.

Yesterday's statement of the Federal Reserve was balanced. On one side, the monetary authorities cited solid economic expansion and strong job gains. On the other, the Fed pointed at external conditions as possible source of uncertainty for the US economy.

The central bank sees a low inflation environment in the short term, however, the consumer price growth will accelerate in the longer term and inflation rate will move toward Fed's goal. The central bank weights inflation lower against economic expansion with taking into account the external conditions.

A low pace of price growth is caused by supply factor (low oil price). Thus, this factor is less important for considering interest rates hikes. To sum up, the Federal Reserve still pursues its plan to rise rates in mid 2015. As a result, the major source of a strong dollar remained in place.

US economy in a good shape

Today's data on the US labor market showed that the expansion remained intact. The number of new unemployed people dropped to 265k. It was the lowest level in fifteen years. However, the result could have been affected by the holiday day in the reported week. As a result, the EUR/USD was not significantly affected after release.

Nevertheless, the overall assessment of the US labor market is very high. In 2014 the unemployment rate dropped to 5.6 percent – the lowest level in six years. In addition, companies added almost 3 million in jobs – the largest amount since 1999. Thus, recent reports suggest the Fed will rise rates in mid 2015.

Tomorrow's data on GDP will probably show the growth stood at 3.1 percent in the last quarter of 2014 after 5 percent growth in the preceding period. A similar result will be next argument for the hawks in Fed to rise rates.

Greece under pressure

First days of Syriza government resulted in mounting tensions in the Greek financial markets. Three year bond yields hit 17 percent and the financial sector stocks tumbled around 25 percent. Moreover, there is a significant deposit outflow from bank as Greeks worry about re-nationalization of lenders. The outflow amount is higher than it was in 2012, when Greece as near of leaving the euro zone, according to Bloomberg.

Germany and Netherlands warned Athens, that Greece to stay in the euro zone, should obey bailout terms. In a response, the Greek government tried to calm tensions – finance minister Yanis Varoufakis said, although the talks in the European Union are tough, there will be no unjustified expectations.

Credit breakthrough

The European Central Bank chief economist Peter Praet said, there are signs of further improvement in credit conditions after newly introduced measures by the central banks. Today's data showed that credit for private sector dropped 0.5 percent, a better result than 0.9 percent decline in the previous month. Earlier, the ECB informed that credit conditions in bank improved in 2014.

Stronger zloty

Today's session is very good for the zloty. The Polish currency rose against the frank as the EUR/USD moved higher. This situation stems for the fact, that some investors in the frank market reduce positions taken after the SNB decided to drop EUR/CHF floor.

The zloty was strengthened against the euro and the dollar due to speculations that Poland will be direction for capital flows as it has high rates (according to Bloomberg), if the MPC decides to leave rates unchanged. The zloty remained at low levels despite today's moves.

29 Jan 2015 17:29|Artur Wiszniewski

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.

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