Daily analysis 29.07.2016

The Bank of Japan did not fulfill the market's expectations, which caused a clear strengthening of the Japanese currency. Data from the euro zone is close to the consensus and investors are anticipating the American GDP. The zloty and the forint are slightly weaker due to a lower worldwide monetary stimulation from the BoJ.

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

• 14.00: Initial data regarding inflation from Poland for July (estimations: negative 0.8% y/y, negative 0.1% m/m).
• 14.30: Quarter reading of employment costs in the USA (estimations: positive 0.6%).
• 14.30: GDP from the USA (estimations: positive 2.5% for the second quarter in annualized interpretation).
• 15.45: Chicago PMI (estimations: 54).

BoJ disappoints

We wrote a lot about the situation before the Bank of Japan meeting in the Afternoon analysis yesterday. We also took note of a significant dissonance of the market expectations, which made it difficult to establish the consensus. However, we can state that it was not fulfilled by the BoJ.

The scale of assets purchase remained unchanged and is at the level of 80 trillion yens per year. This is inspite expectations for its growth by approximately 10 trillion. Haruhiko Kuroda and his associates did not decide to decrease deposit rates, despite that many economists expected it to be reduced from negative 0.1% to at least negative 0.2%.

This caused the yen to immediately increase by 2% against the main currencies. There was one surprising change from the BoJ. The bank decided to buy more shares. The scale increased from 3.3 trillion yens to 6 trillion yens per year. This helped the Japanese share market, because it usually losses when the yen gains value. The financial sector was positive about leaving interest rates unchanged as well. As a result, the Nikkei finished the session with minor growths, despite the hesitation of sentiments.

The BoJ announcement alone could also decrease a negative effect on the yen, as well as the share market. It states that, “the bank has faith that the monetary actions and the government initiatives will cause synergy for the economy.” The Minister of Finance, Taro Aso, was satisfied with the decision of the BoJ as well. This may mean that the central bank, as well as the government will try to coordinate their policies to a larger degree.

It is most likely that the fiscal stimulation program will be presented on the 2nd of August. According to the NHK information cited by Bloomberg, the package would consist of expenses worth more than 30 trillion yens. Previously, this amount was at the level of approximately 28 trillion. However, the market has not enough encouragements for selling the yen for the time being. This means that the USD/JPY may go below the 100 level.

Data from euro zone and USA

Today's readings from the euro zone were close to the expectations. In the second quarter, the economic growth amounted 1.5% y/y and unemployment remained at the level of 10.1% in June. On the other hand, base case inflation was slightly higher than consensus and it amounted 0.9% y/y. However, an increase in prices is relatively limited, even in services sector. Thus, the data should not have any impact on the ECB actions.

It's worth focusing on the American GDP reading today. It has seemed that the second quarter will be relatively positive for the American economy. The economists consensus estimated a 2.5% development in annualized interpretation between April and June.

However, worse data regarding the American foreign trade, may cause the actual data to be significantly weaker. At the beginning of the week, the GDPNow model of the Atlanta Federal Reserve, estimated a 2.3% growth. Currently, it's only 1.8%. We can't say that this significantly changes the view on the condition of the American economy. However, a lower increase does not encourage to raise interest rates.

We must also not forget the report regarding quarter employment costs. According to the forecasts, they increased by 0.6%. If they are by more than 0.1% higher than expected, the dollar should not lose value with a slightly weaker GDP reading. However, the American currency could wear-off more, if the economic growth, as well as employment costs are below the consensus.

Stabilization

The EUR/PLN returned to the 4.36 area yesterday afternoon. Today, we could see a minor wear-off of the Polish currency. It was probably caused by the lack of a clear increase in monetary stimulation by the Bank of Japan. The forint lost value as well. However, changes on the Hungarian currency are also symbolic.

Currently, a worse GDP reading, as well as lower employment costs from the USA, should be favorable for the PLN. Even if the data is disturbed by the short-term factors, it will not take the Fed closer to the monetary tightening. This is a positive element for the emerging market currencies. However, changes on the EUR/PLN should not be large and would unlikely exceed 0.01 PLN.