Virus from China depreciates the Polish currency (Daily analysis 23.01.2020)

Slightly weaker sentiment in the broader market caused by the virus that originated in China, weakens the zloty, although changes are limited. Retail sales in Poland in December in real terms slightly disappoint the expectations. In the afternoon there will be a conference of the President of the European Central Bank.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 1:45 p.m.: Statament following ECB meeting (estimates: no changes).
• 2:30 p.m.: Start of the press conference with Christine Lagarde, President of the ECB.
• 2:30 p.m.: Number of initial jobless claims submitted in the USA last week (estimates: 214k).

Virus from Wuhan versus WTI oil prices

The spread of a new virus that originated in China starts to get a slight impact on the market. The Chinese government has blocked travel from and to Wuhan, an 11-million-strong city where the virus most likely originated. As a result, the main indexes in China have recorded a drop of about 3%. The reaction on European markets was much more subdued and one hour after the beginning of quotations it was limited to about 0.5%. The yen was also appreciating (the currency perceived as one of the so-called safe havens), the USD/JPY quotations fell by about 0.3% to about 109.50 one hour after the beginning of quotations in Europe.

Apart from strong declines in Asian markets, the response of the broader market, although visible, is currently very limited. Europe's main exchange indexes are still at historic highs, and main currencies remain within a limited volatility range. The spectre of restrictions in transport, including aviation (lower fuel consumption), may slightly intensify the fall in oil prices. The price of the WTI fell below 56 USD per barrel today, the lowest level since early December. However, the oil market is facing the problem of growing stocks and declining demand for a long time. As a result, the pressure on inflation may decrease in the following months if oil prices remain in the range of current (or lower) levels.

EUR/USD still slightly below 1.11

The main currency pair, i.e. the EUR/USD, remains within a narrow fluctuation range of around 1.1080-1.110. However, it may increase this afternoon when the press conference of the President of the European Central Bank (ECB) begins. No change in monetary policy or in the expectations of the bank are expected, but around this event volatility in the broader market usually intensifies. Christine Lagarde, the current head of the ECB, was a bit more hawkish during the last conference than one could expect (and she is seen as a supporter of an even milder monetary policy than her predecessor Mario Draghi). A similar overtone could theoretically strengthen the euro somewhat, although potential changes in the current market situation seem limited.

Global sentiment and data does not support the zloty

In the morning, data on retail sales in Poland in December were announced. After lower-than-expected production readings in the construction and industrial sectors in December, today's data had a mixed overtone. Retail sales in current prices increased by 7.5% annually and 14.6% monthly, in both cases exceeding market expectations by 0.2 percentage points. Real sales (in constant prices, excluding the inflation factor) increased by 5.7% and were 0.3 percentage points below the market consensus.

Although the publication itself had very limited influence on the zloty's quotations, the last December readings do not support the Polish currency when the whole basket is under slight supply pressure due to the globally stronger dollar. However, they are not (at least for the time being) a cause for concern regarding the condition of the Polish economy. Inflation also remains at an elevated level; therefore, the zloty's basket should not record a significant depreciation.

Today, the zloty was somewhat weaker due to a slight deterioration in global market sentiment. The EUR/PLN exchange rate was quoted around 4.238-4.25 in the morning. This range may widen somewhat around ECB-related events in the afternoon, and also if the dollar gains against the euro. However, for more significant changes we should probably wait until tomorrow when the preliminary data of PMI indexes from, among others, the eurozone and the UK will be published.