Afternoon analysis 04.12.2014:
Although the European Central Bank didn't change its policy stance, Mario Draghi's press conference as usual was a strong market mover. The zloty dropped after recent gains. The rouble near record lows despite Putin's threats.
As expected, the European Central Bank left interest rates unchanged at record low levels and refrained from introducing additional stimulus measures. As usual, stronger market reactions were seen after ECB president Mario Draghi press conference that damped to dovish expectations.
Mario Draghi confirmed that the ECB is ready to add stimulus if needed. However, any concrete actions are to be taken in the first quarter of 2015, after monetary authorities assess impact of tools already used. Draghi didn't give any expected calendar of ECB's actions.
ECB president said that the Governing Council discussed on different ways to meet central bank's goal of inflation near 2 percent, including quantitative easing. In regard to asset classes Draghi yoked that almost everything was discussed except gold. ECB president when asked about whether the unanimity among Governing Council is needed to pursue the QE case, said that it is not necessary.
In regard to oil market developments, Draghi said that the ECB is monitoring the situation. In next week the second TLTRO tender is scheduled, what is one of tools that monetary authorities will asses before taking any additional action. However, Draghi didn't give any expected target for the TLTRO, what will impede assessment of this measure.
To sum up, market participants overestimated dovish stance of the ECB. As a result, the euro posted significant gains after Mario Draghi announced that there will be no additional actions before assessing impact of previously taken actions.
Optimistic data from the US
Initial claims fell 17k to 297k – the Department of Labor said today. It was a bit worse than 290k expected. However, it is a quite positive premise before tomorrow's monthly data from labor market. Similarly, the Challenger report on expected jobs cut, was better than expected. The number stood at 35.940k, down from 51.183k in the previous month.
On Friday the Department of Labor will release its monthly report on employment change and unemployment rate. According to estimates, the non-farm employment rose 232k and unemployment rate stood at 5.8 percent.
This report is one of the most important premises for the Federal Reserve to assess whether to remain on track to increase interest rates in mid 2015. If data meets expectations of is slightly better that projected, the dollar will return to gains.
The rouble down after Putin
The Bank of Russia introduced additional measures to stem rouble's slide. Monetary authorities decided to lower interest rate on dollar liquidity provisions. This step is aimed at provide dollar liquidity for financial sector from central bank. As a result, the buying in the market that recently has pushed rouble down, will be limited. This was a third bold action from the Bank of Russia this week, after conducting two interventions in the market on Monday and Wednesday.
Today Vladimir Putin addressed two chambers of parliament. He told policymakers that speculative investors will be punished for rouble's plunge and blamed the West for deterioration of economic conditions in Russia. However, he didn't elaborate on falling prices of energy commodities that poses threat to Moscow's budget.
In spite of central bank's effort to spur currency, the rouble moved today near its record lows against the euro and the dollar.
The zloty weakened
After the Monetary Policy Council left interest rates unchanged, the zloty dropped. Monetary authorities presented a somewhat neutral view that ends this easing cycle. Earlier this week the Polish currency rose as market participants bet that the MPC will refrain form additional cuts.
Today the zloty fell against the euro after posting significant gains this week. However, the Polish currency rose against the dollar. The polish currency is in the position to gains, if market conditions improves.
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