Afternoon analysis 02.06.2016

, author:

Marcin Lipka

The ECB meeting didn’t cause significant changes on currencies. Investors are expected to focus on tomorrow’s Labour Department readings after the ADP and jobless claims publications. The OPEC didn’t change its production policy. Small changes on the zloty in the afternoon.

The ECB decision to keep monetary policy unchanged was in line with investors’ expectations. Moreover there were no significant surprises during Mario Draghi’s conference. Only two comments created some volatility – inflation projections and hypothetical second round effects.

During the June meeting, the MPC revised its macroeconomic projections. The GDP growth is supposed to increase by 1.6% this year, while the expectations in March were at 1.4%. For the two following years, the ECB sees growth at 1.7%. It was broadly anticipated by the market.

However, the inflation was hiked slightly less than anticipated with only 0.1 percentage point upgrade for this year (0.2% for 2016) while no change both for 2017 (1.3% y/y) and 2018 (1.6% y/y) is expected comparing to previous estimates. Taking into the account a significant oil appreciation, there were expectations for some more visible changes. As a result, this was an element which created some pressure on the euro.

On the other hand, concerning deflation - Draghi doesn’t expect the second round effect. Earlier there were some fears that lower commodity prices may translate into lower core inflation and keep the overall price level subdued for longer. It would have been an argument for a more benign monetary policy. Eventually, it appeared that this effect will probably not occur. Thus, there is no need for a larger stimulation. This factor pushed the EUR/USD a bit higher.

The ADP and jobless claims in line with expectations

The ADP and jobless claims readings from the US were in anticipation of Mario Draghi’s conference. Both publications were in line with the consensus - which increase the odds that Friday’s payrolls data will also be around the median projections.

It is worth noting, however, that the market has recently been watching earnings growth closely. If wages rise more than 2.5% y/y, this should be dollar positive even if other job market parameters turn out to be close to the market consensus.

No change in the OPEC policy. The zloty remains stable

In the morning, there were some speculations that a new oil production limit or production freeze could be introduced during the OPEC meeting. However, in line with our previous analysis, this scenario didn’t happen. The cartel kept its policy to allow the members to produce as much oil as they want.

The oil was lower after this information hit the wire, but the sell off was limited. Investors are expected to focus again on the supply and demand balance. We can also assume that the 50 USD per barrel should be the neutral level for the oil and the incoming data could deviate WTI from this level.

Regarding the Polish currency - it was fairly stable during Mario Draghi’s conference. The following hours should also be calm for the PLN. Similarly to the global currencies, the zloty is supposed to wait for the US data – payrolls, services ISM and comments from Fed’s governor Lael Brainard.

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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