Afternoon analysis 17.10.2014:
After two days of heightened volatility in the markets a market sentiment is getting better. The zloty exploited better than estimated production data. An improved sentiment of the US consumers sent the dollar higher. The EBC will soon launch asset purchases.
The last few days were particularly tough for investors. On one hand, the macroeconomic data increased uncertainty concerning the shape of economy. The German reports were especially poor as they sparked speculations that the major euro zone economy may slip into recession. But on the other hand, the Federal Open Market Committee members signaled that it is possible the Federal Reserve deffer the end of quantitative easing. The Fed originally planned to close the QE in October.
The US data showed that the world major economy is in quite good shape. Although the retail sales growth was below expectations, the unemployment claims number was clearly better than projected as it fell to the lowest level in 14 years. In addition, industrial production report was also better than estimated.
Today's housing data didn't create direction in the markets. The data on building permits was a little below expectations, but the report on new home starts was better than projected. After strong moves in the recent days, Friday's session was rather calm. One could have seen significant gains in the stock markets (above 2 percent in some places) and the EUR/USD was little changed.
The University of Michigan index report showed improvement of consumer sentiment in the United States. The gauge rose to 86.4 points from 84.6 points in the previous month, more than 84 points anticipated. It was the highest level since July 2007.
A market sentiment was improved as Benoit Coeure from the European Central Bank said that the central bank will start asset purchases within few days. Markets participants were disappointed by the fact that the ECB didn't formulate its planned level of asset purchases, but the fact that it is going to eventually launch the scheme is calming in the volatile environment.
The zloty exploited good data
In September the industrial production growth was above expectations. It stood at 4.2 percent on a yearly basis, up form minus 1.9 percent in the previous month and above 2.7 percent expected. The good result was due the contribution of manufacturing – it rose 4.9 percent. In addition, the production in construction was solid, it rose 5.6 against only 0.5 percent projected.
Today's data didn't alter expectations for interest rates cut in November. The Monetary Policy Council is to cut rates by 25 basis points. As a result, the zloty was slightly up after the industrial data was released. But later it fell against the dollar as an improved consumer sentiment pushed the US currency higher. Conversely, the euro drop was exploited by the zloty, and the EUR/PLN fell from 7-month high.
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