Afternoon analysis 13.05.2016

, author:

Piotr Lonczak

The dollar gained after solid sales numbers. The Polish economy disappointed. Report on the GDP growth, inflation and current account missed the expectations. The zloty slightly higher before the decision of Moody's.

The dollar gained over the last two sessions. Yesterday, the Federal Reserve comments helped the currency. Boston Fed President Eric Rosengren suggested two hikes this year.

His stance was somewhat surprising, given the latest report from the US economy. The GDP report especially missed the expectations by showing the slowest pace of growth in two years. Other reports also missed the expectations and suggested a deceleration. And finally, the labor market data missed the forecast. Until then, the employment reports had been very positive.

Eric Rosengren's comments supported the dollar against the euro and other major pairs. The move was strengthened by today's data on retail sales. This time, the report was clearly above the forecast.

Retail sales increased 1.3 percent on a monthly basis against the 0.7 percent forecast. Last month they dropped 0.3 percent. The reports, which exclude transportation equipment, increased 0.8 percent. They was higher than the 0.5 percent prediction. Last time, they increased 0.4 percent (revised from 0.2 percent).

Today's data suggests that after a poor first quarter, the next three months may be quite solid. As a result, the probability that the Fed will pursue its tightening plan has increased. Especially given the situation that households consumption increased, which may support not only the GDP result, but also inflation rebound.

Zloty steady before Moody's

Friday's data from the Polish economy were rather poor. In the morning, the CSO showed the GDP report that missed the expectations. In the first quarter, the economy increased 3 percent against 4.3 percent in the prior period. The forecast was for a 3.4 percent growth pace. The CSO will release a detailed report on the GDP, which will allow for a better analysis of the sources of weakness.

In the second part of the session, the NBP released additional poor data. The core inflation dropped to negative 0.4 percent against 0.2 percent in the prior month. The reading was below the negative 0.2 percent forecast. The publication suggests that the deflation may accelerate.

Moreover, the balance of payments number were below the expectations. The current account deficit stood at 103 million euros against the surplus expected at 330 million euros. The international trade surplus stood at 204 million euros, which was also below the forecast. In the prior month, the surplus stood at 216 million euros (revised down from 341 million euros).

To summarize, today's reports were negative for the zloty. However, comments from Adam Glapiński could have been the factor that supported the zloty. The future NBP president said that the central bank will not participate in the plan of franc loans conversion (source Dziennik Gazeta Prawna).

On Friday, the zloty was rather steady. However, the factor that may influence the zloty in the short term, will be the decision of Moody's regarding the country's rating. Given the high probability of a negative decision, the zloty may decline.

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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