Afternoon analysis 19.08.2015

, author:

Piotr Lonczak

Inflation in the US missed the forecast. However, the dollar gained after the comments from the Fed member. The German parliament backed the Greek bailout program. The zloty dropped after the reports from Poland were weaker than expected.

On Wednesday the key release will be the Federal Open Market Committee's July minutes. The US central bank will not provide any explicit clues on whether it is going to increase rates in September. Hence, the main task will be to spot nuances in the release (more on the issue in our morning commentary). All in all, investors are hoping that the publication will help to better assess whether the September meeting is more probable than December as the moment of the first hike in almost a decade.

Today's report pointed at the later term. The price growth was lower than it was expected. In July the price growth stood at 0.1 percent on a monthly basis - less than the 0.2 percent forecast. However, the year on year report was in line with the forecast at 0.2 percent. The core inflation was in a similar fashion. The gauge which excludes volatile food and energy costs increased 0.1 percent on a monthly basis and 1.8 percent against the preceding year.

The release significantly weakened the dollar. However, the US currency quickly recouped its losses. The St. Louis Fed President James Bullard said that he will argue for a hike in September. Although he is viewed as a hawk and he has no vote in the FOMC this year, the remark was enough to support the dollar.

Greek bailout agreed

Greece is moving forward with the bailout. Today the Bundestag agreed to provide financial support for Athens. 454 lawmakers voted for, 113 were against and 18 were absent. Also, the Dutch parliament is expected to agree on the program today. Athens is going to receive 86 billion euros in financial aid in exchange for reforms. However, the reform plan has not been revealed.

The next step is to include the International Monetary Fund in the support program. The Washington-based institution is not willing to support the scheme as it considers the Greek debt as unsustainable. However, the German Chancellor Angela Merkel has recently argued that some form of debt relief will be discussed in the fall.

On Thursday, Athens is expected to repay the European Central Bank. Later, the Greek Prime Minister Alexis Tsipras will ask the parliament for a vote of confidence. It will lead to a snap election. All in all, this factor will have limited impact in the markets. The Greek crisis is getting less important.

Weaker zloty

Today's reports from Poland missed the forecasts. Industrial production increased 3.8 percent on a yearly basis. Less than the 4.1 percent that was forecast and a weaker result than the 7.6 percent in the preceding month. Retail sales also missed the forecast. It increased just 1.2 percent against the 2.9 percent that was projected.

Recently the Polish economy results has been mixed. In spite of strong export growth and solid expansion in the labor market, the GDP missed the forecast (the growth stood at 3.3 percent against the 3.6 percent forecast). If the tendency holds, the discussion on interest rate cuts may be restarted. Jerzy Osiatyński from the Monetary Policy Council recently suggested that there is some space for cuts. This factor will negatively affect the zloty in the long term.

The zloty declined after today's releases. Today's weak reports came in at the wrong moment. The FOMC's minutes may show that the Fed is ready to increase rates. As a result, the zloty will be under pressure from the Fed's tightening and weak reports.

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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