Afternoon analysis 19.04.2016

, author:

Piotr Lonczak

The euro higher before the ECB meeting. Today's data hurt the dollar. A broad weakness of the zloty. Data from Poland missed the forecasts.

The ECB's bank lending survey showed ongoing improvement (data regarding the first quarter 2016). Credit conditions for enterprises improved further and the demand for credit increased. As a result, the value of credit increased.

According to the ECB, banks are using the money from the asset purchase program to increase credit. The ECB's negative deposit rate also supports the credit growth. However, in spite of easing the credit conditions, they remain quite tight in the long run perspective.

A report from the ECB suggests that the tools introduced by the monetary authorities to spur the credit action are working. As a result, the Frankfurt-based institution may be less eager to introduce new measures. A similar view was supported by the latest critique of the ECB's actions from German lawmakers. The German politicians have argued that the loose monetary policy hurts retirement savings and supports the growth of populism.

On Thursday, the ECB is scheduled to release its decision on the monetary policy. According to the market expectations, it will leave rates unchanged. As usual, the most important will be Mario Draghi's press conference. It may help to determine the situation in the EUR/USD market if the ECB president gives some hints on the further easing later in the year. The latest survey from Bloomberg showed that the ECB will act in September.

Developments in the EUR/USD market do not reflect expectations for further easing from the ECB. The euro gained recently, not only against the dollar, but against the franc and the pound.

On Tuesday, the US housing market data missed the forecasts. Building permits dropped to 1086k from 1177k against the 1200k that was expected. Housing started to decline to 1089k from 1178k against the 1170k that was forecasted.

The dollar extended losses after the release. The US currency did not exploit the hawkish comments from the Boston Fed President. Eric Rosengren said the central bank will raise rates at a faster pace than the market anticipates.

Zloty's weakness

Today's data from the Polish economy surprised negatively. Industrial production increased 0.5 percent on a yearly basis. The reading was worse than the 3 percent forecast. In the prior month, production increased 6.7 percent. Moreover, the data on retail sales also missed the expectations. Retail sales increased 0.8 percent on a yearly basis against the 3.4 percent that was expected, and 3.9 percent increase in the prior month.

Reports were clearly worse than yesterday's data on the labor market. Nevertheless, the assessment of the Polish economy remains positive. Reports on the labor market suggest a strong employment increase. The situation may reflect that companies are pursuing investment plans in spite of a transitory drop in the sector's activity. Moreover, the report could have been affected by the seasonal factors due to the holiday period.

Although the economic situation remains positive, the zloty's developments are concerning. The Polish currency has recently performed worse than the forint. It could have been due to the heightened political risk. In the very near future, the zloty will remain weak with a tendency to drop even further.

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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