Afternoon analysis 10.09.2015

, author:

Marcin Lipka

The Bank of England is currently fairly calm regarding the conditions of its economy. Brazil's rating cut to junk speeds up the sliding pace of the local currency. The zloty is fairly strong during today's session.

No panic from the BoE

Headline parameters of the Bank of England (BoE) monetary policy haven't changed. The benchmark rate remained at 0.5% and only one MPC member wanted to hike the cost of credit at the September meeting. Both parameters were in line with market consensus.

A much more interesting topic was the overall calm view regarding global events. In the statement we can read that recent events in China and in other EM economies increasing the risks concerning its future but “global developments do not as yet appear sufficient to alter materially the central outlook described in the August Report”.

What is also worth noting is the much more balanced approach from the BoE than last week's ECB's view. Partly it can be attributed to the different economic situation in the UK, which is getting ready to hike the benchmark while the eurozone is actually in full scale QE operation. Additionally, the eurozone is much more dependent on the Chinese and Asian conditions than the UK. However, even taking into account all of the arguments such a big difference can be surprising.

Brazil with junk rating

Standard & Poor's cut Brazil's rating today to the junk level. Looking at the unstable macroeconomic and political situation of this country, the decision might have been expected but the speed of action from the rating agency looks a bit surprising.

Only one and half months ago the sovereign rating perspective was changed from neutral to negative. Additionally, even after the cut to junk the perspective remains negative, which may suggest more bad news for Brazil in the near future.

This information pushed the local currency lower. The USD/BRL pair jumped to the 3.90 mark, which is the highest rate in 13 years. Pushing the pair higher to the 4.00 level will mean that the USD/BRL will reach an all time high.

Zloty is a bit stronger

Today the zloty was stronger comparing to its Hungarian counterpart. The HUF lost around a quarter of a percent to the euro while the PLN remained unchanged to the common currency. It might be an effect of today's government bond sale which sometimes creates additional demand for the zloty. But such effects do not usually translate to any sustained trend.

Still it is not expected to look towards a significantly stronger PLN which is expected to be dependant on global sentiment. The base scenario for the EUR/PLN is to remain around 4.22 with a low probability of moving in any direction till the end of the week.

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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