Tension between the US and China intensifies (Afternoon analysis 14.05.2020)

The US President adds another element of uncertainty to the market participants. The sentiment is still pessimistic. The zloty is somewhat weaker, although the scale of the depreciation has not increased.

Trump: I will certainly look at it…

Thursday afternoon was dominated by negative sentiment. A new cause for concern came to the warnings about the second wave of the pandemic. The weekly number of initial jobless claims in the USA exceeded the pessimistic expectations by as much as half a million. 2.981 million claims are almost 200,000 fewer than the week before (3.169 million), which is probably the only consolation in this reading.

More importantly, the decline is not happening as quickly as expected, which may mean a slightly longer (and harder) recovery path. In total, this gives 36.5 million claims submitted in the last two months since the beginning of the pandemic, which is practically as much as during the 1.5 years of the financial crisis a decade ago. Although the response from both the monetary and fiscal side is much faster and stronger than then, the number of jobless claims submitted gives a picture of how strong recession hit the economy.

The second piece of information that came today and may concern market participants is the tightening of rhetoric against China by Donald Trump. The US President, quoted by Bloomberg, said today that he does not intend to talk to his Chinese counterpart, Xi Jinping. Moreover, he will "look at" Chinese companies trading on the stock exchanges in New York and Nasdaq, which do not apply the US accounting rules.

No more details are given, but this is another signal of tougher rhetoric on Trump's part, which, like last year, sends slightly contradictory signals to the message from members of his administration. After all, just a few days ago, representatives of the White House spoke to the Chinese Deputy Prime Minister and sent out a positive signal, announcing, among other things, that they were maintaining telephone contact in order to work out the next phase of the trade agreement.

Main currencies are stronger than zloty

Due to these negative sentiments, the zloty was depreciating in relation to the main currencies (except for the pound, which was under supply pressure). The EUR/PLN exchange rate was in the range of approx. 4.56-4.57 and the USD/PLN pair was quoted around 4.22-4.24.

The Polish currency was saved from deepening the decline by, among others, reduced scale of falls in the equity markets in the afternoon. At some point in time, the main European indexes lost more than 3%. However, a potential increase in the scale of sell-offs later in the day may also increase the supply pressure on assets perceived as more risky, including the zloty.