Afternoon analysis 29.01.2016

The dollar increased on the GDP report. More stimulus from another central bank may support risk assets in the longer term. The zloty exceeded gains.

The European Central Bank released the data on money supply. The December numbers were worse than the forecast. The M3 money aggregate increased 4.7 percent annually against the 5.2 percent forecast. Moreover, the previous report was revised down. Households credit also missed the forecast. It increased 1.4 percent from the preceding year against the plus 1.5 percent forecast. Last month it increased 1.4 percent.

In contrast, the flash inflation report in January was slightly better than forecast. The inflation rate increased to 0.4 percent from 0.2 percent in the prior month. It was in line with the forecast. The core inflation rate (that excludes volatile energy and food prices) increased to 1 percent from 0.9 percent in the prior month. It was above the forecast.

Today's reports from the eurozone showed that although the general tendencies are positive, the pace of improvement is still too slow. The report were neutral to the expectations concerning the outlook for more stimulus in the March ECB meeting.

Stronger dollar

Today's data on the US GDP growth was slightly below the forecast. In the final quarter of 2015 the GDP growth stood at 0.7 percent against the 0.8 percent forecast. It was clearly below 2 percent growth in the previous three-month period. In 2015 the GDP growth stood at 2.4 percent.

The slowdown happened due to investment cuts (notably in the oil industry). Overall investment dropped for the second quarter in a row. Strong dollar undermined the export growth, what resulted in a negative contribution of international trade. Inventories also dropped. In contrast, the factor that added to growth was consumption, supported by the labor market expansion.

All in all, the slowdown is rather only transitory. In Wednesday's statement the Federal Reserve said the economy slowed down in the end of 2015. The dollar increased after the GDP numbers.

More stimulus

On Friday the Bank of Japan unexpectedly the cut interest rates. The deposit rate dropped to negative 0.1 percent. The market reaction was very strong as the Japanese monetary authorities earlier had excluded a similar move.

The Bank of Japan is another major central bank which surprised the financial markets with a more dovish stance than it was expected. The very first surprise came from the European Central Bank. The Frankfurt-based institution suggested the possibility to increase the monetary stimulus in March. ECB President Mario Draghi said the central bank is determined to meet the inflation goal.

The Federal Reserve was also more dovish than it was expected. On Wednesday the US central bank said it is closely monitoring the financial and economic developments and their impact on the US economy. The Fed is not attached to the four interest rate hike plan in 2016. Although the basis scenario was not modified, the flexibility that was shown by the central bank calms the markets.

Dovish stance of the major central banks supports the positive sentiment in the broad market. This factor will help the world stock markets and the emerging market currencies.

Impact of this factor was apparent in the zloty's developments. The Polish currency extended gains on Friday. The franc dropped below 4 zloty level and the euro declined below the 4.43 zlotys. However, the Polish currency remained near it low levels against the euro and the dollar. Although the probability of a stronger zloty increased, the appreciation will be rather limited.