Afternoon analysis 21.01.2016

, Autor:

Marcin Lipka

Risk aversion returned in the markets. The US inflation below the forecast. The zloty dropped in spite of solid data from the labor market.

The US inflation data was weaker than it was expected. Consumer prices dropped 0.1 percent on a monthly basis against the 0 percent forecast. On a yearly basis inflation stood at 0.7 percent after 0.5 percent in the prior month. The reading was weaker than the 0.8 percent forecast.

The core inflation increased 0.1 percent against 0.2 percent in the prior month and 0.2 percent that was expected. On a yearly basis the core inflation was 2.1 percent - in line with the forecast. In the prior month inflation stood at 2.1 percent.

To sum up, the US inflation data provides argument against interest rate hikes. Given the latest report, the probability of four interest rate hikes in 2016 has fallen. This factor hurts the dollar and improves the overall market sentiment.

Oil hits new lows

On Wednesday the oil price hit new lows. The commodity price dropped near 28 dollars. It was the lowest level since 2003. The International Energy Agency said the oversupply will continue to hurt prices in 2016. Moreover, the anxiety concerning China and other emerging market economies weighted negatively on the oil price.

Drop in oil price hurts the commodity currencies. The Russian rouble dropped to the lowest level on record. The USD/RUB increased above 81 rubles level. The Norwegian crown and the Canadian dollar also dropped.

The zloty resumed declines

Today's data from the Polish labor market showed positive tendencies were continued. The reading were in line with the forecasts. Employment increased 1.4 percent against 1.2 percent in the prior month and the 1.2 percent forecast. In contrast, the wages growth was weaker than the expectations. The wage growth stood at 3.1 percent against 3.7 percent expected and 4 percent in the prior month.

Today's data showed the positive tendencies continued. Currently, the situation in the labor market is the most positive since 2008. And the labor market developments will continue to be positive in spite of negative sentiment in the financial markets. The Polish labor market has been supported by the improvement in the eurozone economy.

National Bank of Poland President Marek Belka negatively assessed the proposal of the Swiss franc credit conversion (PAP source). The NBP chief said it would put weaker banks in a very difficult position. However, Marek Belka said the banking sector will weather the banking tax.

Last Friday the zloty posted severe losses after the Standard & Poor's agency cut Poland's rating. At the beginning of the week the zloty recouped some recent losses. However, the Polish currency returned to declines as the sentiment in the broad market deteriorated. Given the situation, the probability of a stronger zloty is rather limited. The Polish currency will stabilize with tendency to drop further.

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