Afternoon analysis 02.01.2015

, author:

Piotr Lonczak

The zloty is down as volatility persists. The pound weakened after a worse PMI report. Dovish comments from the ECB pushed the euro lower.

European economic landscape looked poorer after December PMI reports were released. Among three major euro zone economies – Italy, France and Germany – only latter managed to improve and others suffered further deterioration of economic conditions as PMI indices dropped below 50 – a level that distinguishes growth from contraction.

The euro fell to its lowest since the mid 2010. However, not only weak data was responsible for the slump – comments from the European Central Bank also added to drop. ECB president Mario Draghi said the risk of deflation increased in last six months. Moreover, ECB chief economist Peter Praet pointed at mounting risk of consumer prices decline as a reason for launching government bonds purchases.

The pound weakened

Poor data came from the United Kingdom. The PMI report fell to 52.5 from 53.5 in the previous month. It was a worse result than 53.7 expected. The PMI stood at its lowest level in three months. What is more, it showed lower growth of new orders and exports orders stalled.

In the meantime, the Bank of England released data on credit. Figures showed that consumption credit growth stood in three months period ended in November at 8.3 percent annualized. It was the highest pace since October 2005. However, credit for companies was little changed.

Data from the UK revealed a not desired structure of GPD growth that is fueled by consumption financed with credit. Moreover, companies are reluctant to borrow money to invest and exports remains weak. Given this circumstances, the outlook for stable growth in long term is deteriorating. As a consequence, the economy is susceptible to interest rates hikes and the Bank of England will become more eager to defer tightening of policy.

The pound dropped after today's data was released. The GBP/USD dropped to its lowest level since August 2013.

The oil hit new lows

The oil price dropped to its lowest level since mid 2009. The trigger of slide was an information that Russia and Iraq increased supply to the highest level in decades. The Russian output was the largest since the breakdown of the Soviet Union. And the Iraqi production stood at its highest since 1980.

Moreover, the oil price was pushed down due to weakness of global economy. Today's data revealed that the European countries still struggle to return to growth and the Asian economies also suffer worsening GDP growth (the Chinese industrial PMI fell in December to 50.1).

Oil started 2015 as a poor performer and currently there is no valid presumes to believe that the slide may be tamed fast. Given this conditions, the currencies correlated with oil price as Russian rubble and Norwegian krone – will rather remain under pressure in the near term.

The zloty still volatile

After quite good start of the week, Friday's session is not successful for the zloty. The Polish currency remained volatile and it was weakened, however it is stronger than it was in the previous week.

Next week won't provide any important data from the Polish economy. As a result, the zloty will remain under influence of broad market developments. Given latest poor performance of the domestic currency, one can't expect the zloty to increase in the near term.

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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