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Afternoon analysis 21.03.2016

, author:

Piotr Lonczak

A positive sentiment prevailed in the markets. The Polish government may dilute the franc conversion proposal. The zloty is steady at its local highs.

Last week’s meeting of the Federal Reserve resulted in a more dovish stance of the major central bank. Currently, the Fed foresees two interest rate hikes against the four predicted in December. As a result, the market consensus for interest rate increases move to September.

The Fed wants to be certain that the inflation rate returns to the two percent target and the labor market moves to the equilibrium. Fed President Janet Yellen said during a press conference, that given the current level of interest rates the central bank has more scope to react to high inflation than low inflation.

However, the latest comments from the central bank were more hawkish. Last Friday, St. Louis Fed President James Bullard was quite hawkish. Richmond Fed President Jeffrey Lacker presented a similar stance (more on the issue in the previous commentary).

In addition, John Williams, the San Francisco Fed president, was also rather dovish. He said that if it wasn't for the global risk factors, the Fed would raise the rates sooner and faster. Finally, Williams assessed that the US economy has proven its resilience and the basis path for rates has not been altered.

After signaling rather dovish stance, the Fed's members have shown rather a hawkish stance. In contrast, the European Central Bank officials have stressed the readiness to provide more stimuli. All in all, in spite of many statements from the central bank members, the EUR/USD was steady in the narrow range which was around 1.1250.

Appetite for risk

The start of the year in the financial markets was determined by anxiety concerning the Chinese economy. Currently, the country’s GDP growth is the lowest in 25 years. This factor was responsible for heightened volatility in the markets and a severe drop in commodity prices.

The Chinese government addressed the economic problems with a more active fiscal and monetary policy. Since China signaled a more proactive stance, the commodity prices have rebounded. The Chinese have started to fulfill their commitment to support the economy. It launched short term financing after 18 months of suspension. This may reduce tension in the economy.

Coupled with the actions of the ECB and the Fed, the Chinese government activity may support positive sentiment in the markets. The shift in the stance of the major central banks have been reflected in the commodity markets.

The zloty exploited the positive trends in the markets. On Monday, the Polish currency was steady at relatively high levels.

The Polish government may dilute the franc conversion project. Today Deputy Prime Minister Jarosław Gowin said the overall cost of the bill should not exceed 10 billion zlotys (according to Interia.pl). His remarks suggest that one of the major risk factors for the Polish financial sector may be limited. The zloty may exploit the situation to gain in the long term.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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