Afternoon analysis 27.08.2015

, Autor:

Piotr Lonczak

The US GDP report supported the dollar. China's authorities intervened in the stock market. The zloty susceptible to the risk aversion.

In the second quarter the US economy expansion was stronger than it was previously anticipated. The GDP growth stood at 3.7 percent (annualized) against the 2.3 percent reported earlier. A better result was due to increase in investment that was stronger. Moreover, consumption was also higher than previously estimated. The consumption accounts for almost 70 percent of the economy.

In addition, the unemployment claims report exceeded the expectations. The number of unemployment claims dropped to 271k from the last week's 277k. The forecast was for the 274k. A result below 300k signals an ongoing expansion in the labor market.

Recent reports from the US supported the dollar. The US currency has not been stopped by the comments from the Fed members. New York Fed President William Dudley said that September is less compelling than it was few weeks before for interest rate hike. In contrast Esther George from the Kansas Fed said although a hike is necessary, the current market environment complicates a similar decision.

The EUR/USD dropped for the third day in a row. The major currency pair dropped to 1.12 from 1.17 on Monday. After very good session on Wednesday, the US stock market extended increase on good reports and a deferred outlook for interest rate hikes.

European credit

In July credit for private sector in the eurozone accelerated. It increased 0.9 percent against the previous year. A result better than the 0.7 percent projected. However, the previous month reading was revised down to 0.2 percent from the 0.6 percent reported earlier. The money supply growth stood at 5.3 percent.

Since March the numbers on private credit has been showing increasing demand for credit. This factor signals that the pillar of the economic rebound is getting stronger. Recently, there was some rumors that in the face of the Chinese crisis the European Central Bank may introduce additional tools to help the economy. However, the ECB members did not see a need for a similar actions.

Ukraine with debt writedown

A broad improvement in the market sentiment was caused by the rebound in the Shanghai stock exchange. However, after the session was finished, Bloomberg informed that Chinese authorities intervened in the market to stop declines. In addition, the government sold the US bonds to raise dollar needed for currency interventions.

If the rumors are confirmed, it will show that the basis for the current rebound is very weak. Unofficial sources say that the government's goal was to calm the markets before the celebration of the World War II victory anniversary.

After five months of talks Ukraine secured a debt writedown. The face value of outstanding debt will be reduced by 20 percent (about 3.6 billion dollars). Moreover, the debt maturity will be extended. In exchange, the average interest will increase to 7.75 percent from the current 7.20 percent level.

The zloty did not exploit the improvement in the market sentiment. The Polish currency dropped against all its major pair. There is little chance for a stronger zloty in this week.

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