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Afternoon analysis 29.08.2014

29 Aug 2014 17:32|Artur Wiszniewski

The euro rose after inflation growth eased and poor reports from the U.S. were showed. The zloty exploited better than expected GDP data.

The European Central Bank will decide on interest rates in the next week. The ECB's meeting will be the first after Mario Draghi ignited investors' expectations for introducing a quantitative easing in the eurozone. The ECB president pointed on lowering inflation expectations as the reason for additional measures. The outlook for more accommodative monetary policy pushed the euro to the lowest level in 11 months.

Today's inflation report was viewed as an indication to the ECB's future plans. But finally the data was in line with forecasts, therefore it didn't provide the anticipated answer. The eurozone inflation growth dropped to 0.3 percent on a yearly basis in August. In the previous month the inflation rate was 0.4 percent. Another report showed the unemployment rate stood at 11.5 percent, unchanged from the previous month.

The eurozone data wasn't helpful in assessing outlook for ECB's policy. In addition, the growing German defiance against usage of additional tools by the European monetary authorities is putting Mario Draghi in a difficult position. In the last few days Wolfgang Schaeuble, Germany's finance minister, reiterated several times that ECB has done enough to support the economy and there is no room for easing austerity policies. To sum up, the data was supportive for the euro.

Poor US Data

The euro was additionally fueled by the poor US data. The consumer spending growth fell to minus 0.1 percent from 0.4 percent in the previous month. It was worse than expected 0.2 percent. That was the first monthly drop in spending in the last six months. That was bad news due to the fact that consumption comprises 70 percent of the U.S. economy.

Additionally, personal income rose 0.2 percent, slower than the predicted 0.3 percent and down from 0.4 percent last time. In turn, the PCE price index gained 0.1 percent, in line with expectations. The report is carefully monitored by the Federal Reserve due to price developments.

The EUR/USD rose to 1.3186 from today's low 1.31596.

Ukraine is the center of attention

The escalation of the Ukrainian turmoil fueled risk-aversion on the markets. The Ukrainian authorities informed about Russian troops fighting alongside the rebel forces. It was confirmed by NATO. The rebels seized swaths of the southeast territory from government forces.

The Russian authorities consistently deny the presence of Russian troops in Ukrainian territory. All in all, the Russian stance might be considered positive due to the fact that the Kremlin is avoiding official involvement in the fighting against the Ukrainian army.

Brazil in recession

The growth of gross domestic product in Brazil fell in the second quarter to 0.6 percent quarter on quarter. Therefore, the country has fallen into recession. The growth was worse than expected, minus 0.4 percent.

Brazil is the next country in the BRIC group which is going through severe economic problems. In the opinion of the Brazilian authorities after FIFA World Cup this year the country was allegedly due to be on track with GDP growth. However, that wasn't the case as the polls gave no chance for president Dilma Vana Rousseff to be reelected.

The real rose against the dollar. USD/BRL fell 0.5 percent to 2.2390.

The zloty rose after GDP data

The Central Statistical Office said that the gross domestic product rose 3.3 percent on a yearly basis in the second quarter. The result was better than the flash estimate of 3.2 percent. The figures supported the zloty – the Polish currency rose against its main currency pairs. The dollar fell to 3.197, the zloty and the euro dropped to 4.216 zloty. The Franc fell to 3.495 zloty and the pound to 5.30 zloty.

The approaching week will be important for  Polish currency. First, on Monday the PMI index will be shown. The last report on PMI was negative for the zloty due to gauge's result below 50, which is considered a neutral level. Now, predictions show a return to 50 in September. The second most important event for the zloty will be the meeting of the Monetary Policy Council. Although there are no expectations for a cut in the next meeting, the statement of MPC would provide some clues concerning future interest rate developments.

29 Aug 2014 17:32|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.

See also:

29 Aug 2014 12:33

Daily analysis 29.08.2014

28 Aug 2014 17:06

Afternoon analysis 28.08.2014

28 Aug 2014 12:22

Daily analysis 28.08.2014

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