Afternoon analysis 11.04.2016

, Autor:

Piotr Lonczak

Market sentiment improved on Monday. The EUR/USD stabilized in a narrow range. The zloty exploited an opportunity to gain. Dovish comments from the MPC did not affect the zloty.

On Monday a positive sentiment prevailed in the markets. Stocks and commodities gained. The factor that added to positive sentiment was a broad strengthening of the pound. The sterling recouped losses incurred due to anxiety the UK may leave the EU. However, today there was no factor that would change the situation in the UK, thus the move may be only a speculative rebound.

After a brief decline the oil price resumed gains. In the morning the commodity dropped due to the information that Iraq increased output to record 4.55 million barrels per day (Bloomberg source). The nation is the second largest oil producer in the OPEC cartel. As a result, the decision of Baghdad is crucial in the context of the oil producing countries meeting scheduled April 17. Counties associated in the OPEC cartel and other oil producers will take part in the talks.

The Iraq's decision to increase the output limit may limit the probability that there will be a final agreement to freeze the production at the January level. During last few weeks the expectation that oil producers will cut supply has been the major factor responsible for the oil price rebound.

However, in the second part of the session the commodity resumed gains as Venezuela said that the major goal of the coming meeting is to limit production. The commodity market was supported due to broad sentiment improvement as the dollar stabilized. The Chinese reports were helpful as the readings showed rebound in the producer prices, which may suggest the economy is gaining pace.

Rising oil price supported the commodity currencies. The Russian rubble managed to extend the winning streak against the dollar. The Canadian dollar and the Norwegian crown also gained. Eventually, all emerging market currencies posted gains today.

The zloty gained against the euro

Eryk Lon from the MPC said he is ready to support interest rate cuts if the deflationary pressure holds (source PAP). He said a weaker zloty is positive for the economy. Eryk Lon added he may support unorthodox monetary policy tools if they suit the Polish circumstances. Lon asked about possible rating cut by the Moody's agency advised to stay calm.

Moreover, Jerzy Zyzynski from the MPC presented a similarly loose stance (source: Bloomberg). He said that it would be appropriate to start discussion on interest rate cuts within a few months. In addition Zyzynski said that in his view the central bank should support the economy in a larger extent.

In March the inflation rate stood at negative 0.9 percent ­ in line with the flash estimate. The major factor responsible for prices drop was cheap gasoline. Moreover, clothes prices and energy prices declined significantly.

The zloty had a good start of the week. The Polish currency gained against the euro, the dollar and the franc. Only the pound moved higher. Today's comments from the MPC member have not affect the zloty as their view is in the minority. The zloty may stabilize with a tendency to gain.

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