Daily analysis 29.01.2016

The Bank of Japan decreased its deposit rate below zero. The base case inflation of the euro zone is slightly better than expected. Data about the American GDP is in the centre of attention. The zloty slightly gains value due to an improvement in the global sentiment. The franc costs less than 4.00 PLN.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 14.30: The initial GDP reading from the USA for the fourth quarter of 2015 (estimations: +0.8%, annualized quarter on quarter; employment costs: +0.6%).
• 15.45: The PMI Chicago industrial accelerating index (estimations: 45.3).

Surprise from Japan

The decision of the Bank of Japan about decreasing the deposit rate to minus 0.1% caused a visible commotion on the market of currencies and treasury bonds. The USD/JPY pair went up from 118.50 to 121.30. This means that the yen wore off to the dollar by more than 2%. Profitability of the Japanese 10-year treasury bonds dropped by 13 base case points to the are of 0.1%. This is the lowest value in the history of this instrument.

Investors were surprised because of at least two reasons. First of all, just on January 21st 2016 basing on the testimony of the Japanese central bank's chairman, the Reuters wrote that “currently Kuroda does not plan to introduce negative interest rates”. Considering that nothing dramatic happened during the past week, the market had no impulses to expect negative rates.

Kuroda was also dovish during the press conference. He claimed that “the Bank of Japan will cut interest rates even more if needed”. Chairman of the BoJ also claimed that he will do whatever it takes to bring inflation to its 2% target, and that “negative interest rates do not mean limits in quantitative easing”. As a result, Kuroda's statements combined with today's actions may suggest that the central bank is ready for further actions at practically any time. This should keep a significant pressure on the Japanese currency. Also, in the case of an improvement in the global sentiment, it may also be an argument for its wear off.

Inflation from euro zone and GDP from USA

Data about inflation from the euro zone were published before noon. They appeared to be coherent with expectations (+0.4% y/y). However, it is worth noting that the base case inflation went slightly up, and was 1.0% y/y against the consensus of 0.9% y/y. This can be a certain argument for the hawkish part of the ECB members that inflation created mainly by the services sector, emains at a similar level as in the second part of the past year.

On the other hand, the today's GDP reading from the USA may cause a slight volatility. Yesterday's weak publication about orders for durable goods for December, additionally combined with data review for the past month, can have a negative impact on an increase for the fourth quarter. It may also carry the risk that the annualized consensus on the level of +0.8% q/q was not fulfilled.

The Bloomberg agency quoted Michael Foreli, chief of the American JP Morgan economists. He claims that even a negative reading is possible. Right after the publication of the report about orders for durable goods, JP Morgan decreased it expectations towards the American GDP below zero.

If the information about a zero or negative growth of the GDP really hits the market, opinions about a decrease in chances for monetary tightening in the USA in March would appear instantly. This would happen even if majority of changes is not caused by a breakdown of consumption or investments, by by a difference in supplies or a negative contribution of net export. It is even possible that the EUR/USD would go towards 1.10.

Franc costs less than 4.00 PLN

Since morning the zloty takes advantage from a better global sentiment. It is an effect of a decrease in the Japanese interest rates below zero among others. The situation on the Swiss franc is also positive from the Polish debtors' point of view. An increase in the EUR/CHF above the level of 1.1100, and a depreciation correction on the EUR/PLN cause the CHF/PLN to go below the limit of 4.00.

However, quite a big aversion towards the zloty is seen in general. Today, despite a general enforcement on the zloty, the Hungarian currency is gaining to the euro much more than ours. Thus, we can come to a conclusion that a part of the foreign capital is still sceptical to the Polish assets. It does not think that the PLN quotations to the euro which are close to 4-year minimums, and relatively high profitability of the Polish debt is a sufficient enough argument for taking “a long position”.