Afternoon analysis 19.01.2016

, Autor:

Marcin Lipka

Positive sentiment returned to the markets in spite of the IMF forecast cut. The euro dropped before the European Central Bank meeting. The zloty continued appreciation.

On Tuesday the market sentiment was positive. The major stock indexes in Europe and in the US gained. Commodities also increased. The oil price rebounded 2 percent.

A positive sentiment was caused by the Chinese reports, which were close to the market consensus. The GDP growth decelerated to 6.8 percent in the fourth quarter against 6.9 percent in the previous three months period. It was the worst result in 25 years. It was little below the predicted 6.9 percent. However, the reports on industrial production and retail sales were rather positive.

Today's numbers have shown that although the economy slows down, the situation is not as negative as one could have expected given the January market turmoil. One can expect the situation will stabilize in the coming months.

IMF cuts forecast

In January report the International Monetary Fund cut the forecast for the world economy. The global GDP growth is expected to accelerate from 3.1 percent in 2015 to 3.4 percent in 2016 and to 3.6 percent in the next year. The forecast is lower than previously expected 3.6 percent and 3.8 percent, respectively.

The IMF sees the Chinese slowdown as one of the largest risk factors which may hurt the global growth. The GDP growth is expected to slow down to 6.3 percent in 2016 and to 6 percent in the next year. Tighter monetary conditions in the US poses threat to the global economy. Nevertheless, the drop in oil price is not unambiguous. On one hand, it hurts oil exporting countries, but on the other it supports demand in oil importing countries.

The forecast for the eurozone was increased slightly to 1.7 percent against 1.6 percent earlier. The IMF expects that consumption will rise on low gasoline prices. The US economy is expected to growth 2.6 percent over next two years. The forecast was lowered from 2.8 percent.

Weak data

Sentiment in the German financial sector deteriorated. The ZEW that illustrates the expectation of analysts and investors dropped in January. The gauge dropped to 10.2 against 16.1 in the prior month. The result was slightly better than the forecast 8.2 percent.

A factor responsible for deterioration of expectations was the Chinese crisis that hit in early January. Coupled with probable deterioration in other emerging market economy the situation puts constrains on the German economy. On the other hand, the report showed an improvement in assessment of current situation.

Eurostat showed the final report on inflation. The price growth stood at 0.2 percent, in line with the flash estimate. The core inflation rate stood at 0.8 percent. Overall, the December report was weaker than it was expected, which puts additional pressure on the ECB to provide more stimulus.

The next ECB meeting in scheduled on Thursday. The probability of additional measures is very low. However, ECB President Mario Draghi may provide some insight during a press conference after the meeting.

The zloty recouped losses

Comment from the National Bank of Poland calmed the situation. NBP President Marek Belka in an interview with the TVN 20 BiS said there is no threat for the NBP's independence. Adam Glapinski from the Monetary Policy Council presented a similar assessment of the situation in an interview with the Bloomberg agency. Belka and Glapinski said additional interest rate cuts are very unlikely.

Comment stabilize the situation after the Friday's rating cut by the Standard & Poor's agency. The agency cited risk to the NBP's independence as one of the reasons to lower grade.

On Tuesday the zloty continued the move that started on Monday. However, the move was rather a correction. The overall extent of the increase will be rather limited, and the zloty will remain at the low level in the longer term.

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