Afternoon analysis 23.12.2015:
Positive sentiment returned to the markets. Solid unemployment data showed strong momentum in the labor market. The zloty still in a good shape.
Today's data from the US were neutral for the financial markets. As a result, the tendencies from the morning were continued in the second part of the session. Today gains prevailed in the European markets and the US futures were rising.
The data on household consumption and spending showed the positive tendencies were continued. Income increased 0.3 percent against the plus 0.2 percent that was expected. Spending rose 0.3 percent - in line with the forecast. Moreover, the core PCE inflation rate did not surprise. The major price measure for the Federal Reserve increased 0.1 percent against flat reading in the prior month. PCE inflation increased 1.3 percent on a yearly basis.
The report on durable goods was not as good. It was the first drop in the last three months. Orders dropped 0.4 percent on a monthly basis. The report after excluding transportation equipment showed a 0.1 percent decline and the overall it was flat against the prior month.
The dollar was little up after the reading. However, the EUR/USD increase was caused by the sentiment improvement in the broad market.
The zloty in a good shape
Poland has not benefited from excessive capital inflow, thus the risk of outflow is rather limited - NBP President Marek Belka said in an interview with The Central European Financial Observer (http://www.financialobserver.eu/poland/poland-is-a-matured-and-affluent-european-economy/). The NBP chief said the ECB's actions will mitigate negative impact of the Federal Reserve decision to raise the interest rates.
Marek Belka said that the best decision is to continue current monetary policy. The NBP chief sees the current level of interest rates as close to optimal. The comments did not affect the zloty.
The CSO confirmed the notion that the labor market is very strong. In November the unemployment rate was lower than the forecast. It stood at 9.6 percent against 9.7 percent that was expected. Today's reading was a next one that was better than expected in November. Earlier the data on industrial production, retail sales and reports on employment and wages all exceeded the forecast.
Given the situation, it is very likely that the fourth quarter in Poland may be good. The growth in the third quarter was stronger than expected. And the probability of further acceleration has increased. The growth was has been supported by the export growth in 10 percent pace.
Solid economic reports and the government's plan to keep deficit at 2.8 percent GDP were factors that let the zloty to make up for its losses on the heightened political risk. The zloty was quite strong in spite of some warnings from Fitch Ratings (more on the issue in the prior commentary). Although further appreciation is possible, the probability of correction has increased recently.
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