Afternoon analysis 09.03.2016:
The euro lower before the key meeting of the ECB. The Bank of France cut the GDP forecast. The zloty gained against the euro.
The Bank of France cut the GDP forecast for the first quarter of 2016. Revised forecast was set at 0.3 percent against 0.4 percent reported earlier. It was caused by deterioration of sentiment among manufacturing companies. The sentiment index was unchanged in service and construction sectors.
The report may suggest that the economic difficulties that hurt the emerging market economies affect negatively the European exporters. This is another argument for the ECB to increase its monetary stimulus. It this context yesterday's report from the German industry may be important as it exceeded expectations. As a result, the reading may suggest that the slowdown could have been only transitory.
All in all, in spite of quite good data from Germany the assessment of the eurozone economy has deteriorated. The ECB is closely watching inflation. The HICP inflation rate dropped in February to minus 0.2 percent against 0.3 percent in the previous month. The Frankfurt-based institution's inflation goal is set close to 2 percent. Given the situation, the probability of the ECB meeting its inflation target in the mid term is rather low. As a result, the ECB has to increase stimulus to fulfill its major obligation. The ECB is expected to cut deposit rate by 10 basis points and increase the limit of asset purchases by 15 billion euros.
On Tuesday the commodities market declines. Oil and copper declined together. The price of oil dropped due to adverse report from the Energy Information Agency that cited stubborn oversupply and low prices. However, prices rebounded on Wednesday.
It was due the fact the major central banks move to more loose policy. Tomorrow the ECB is expected to increase stimulus. Moreover, the Federal Reserve may announce that it will lower the pace of tightening. Earlier, the Chinese government may increase fiscal stimulus.
As a result, currencies of commodity exporting countries increased. Today, the Russian rubble, the Norwegian crown and the Canadian dollar increased. The tendency may hold in the longer term if the major central banks will move to more dovish stance.
Adam Glapiński from the NBP said a "more realistic" approach to frank denominated credit is near to be finished (according to PAP). He said that the new solution will comply with the need of preserving the stability of financial sector. Glapiński said the project should be implemented soon to eliminate uncertainty.
Adam Glapiński is the major candidate for succession after Marek Belka's term expires. As a result, his view is rather important. A final solution for the problem will ease some risk in the Polish financial sector. If the solution is broadly accepted, the zloty may gain in the longer term.
The zloty remain in a narrow band. On Friday the MPC will decide on interest rates. According to market consensus it will leave rates unchanged. However, if the MPC shows rather hawkish stance, the zloty may gain. Moreover, the zloty may gain support from the ECB and the Fed.
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