Afternoon analysis 08.03.2016

, author:

Piotr Lonczak

The weak Chinese reports only briefly affected the markets. The zloty rebounded in the second part of the session. The major central banks may support the Polish currency.

Risk aversion on Tuesday was due to weak numbers that came from China. As a result, the major stock indexes and emerging market currencies dropped. Moreover, commodities prices also declined.

Today's report showed that the Chinese export dropped by the most in six years. In February, export dropped 25.4 percent against the negative 12 percent forecast. Import dropped 13.8 percent against the negative 10 percent forecast. It was the 16th decline in a row. Given the situation, the trade surplus narrowed to 32.6 billion dollars against the 50.1 billion dollar forecast.

However, the Chinese foreign trade data is very volatile in the beginning of year. Thus, the report is not accurate enough to built long term expectations.

The other issue is that the Chinese government has recently announced a fiscal stimulus. Moreover, it plans to revamp state-owned companies and pursue the plan to liberalize financial markets. Earlier, the People's Bank of China has said it will conduct a looser policy.

Given the situation, the anxiety concerning China receded. Moreover, the Chinese government is willing to support the GDP growth to a wider extent. In addition, the broad market sentiment is supported by the expectations that the major central banks will be more dovish.

Expectations before the ECB

Investors expect that the ECB will cut deposit rates by 10 basis points and increase the level of monthly asset purchases by 15 billion euros. Moreover, the Frankfurt-based institution may extend the asset purchase program beyond the first quarter of 2017.

Very good data from Germany today did not affect the expectations. The production growth stood at 3.3 percent on a monthly basis. It was the largest gain since September 2009. However, earlier reports on the German economy were rather negative. Moreover, the ECB's major goal is the inflation rate, which remains way below the target of two percent.

Finally, the Federal Reserve may support the markets. The US central bank meeting is scheduled in the next week. Given the latest data on wages (0.1 percent drop) the Fed may decide to lower the pace of interest rate hikes. A similar scenario will support risk appetite in the markets, and may result in rising commodities prices and emerging market currencies.

However, the US central bank may present a more hawkish stance. A similar scenario would negatively affect the market sentiment. But it is not very likely.

Zloty rebounded

In the first part of the session, the zloty dropped. The Polish currency declined due to the Chinese anxiety. But, in the second part of the day the zloty recouped earlier losses.

In the coming days, the Fed and the ECB will unveil their plans. If the major central banks loosen their stance, the zloty may increase. Moreover, the Polish currency may gain support from the Monetary Policy Council as it will present a rather hawkish stance on Friday.

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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