Daily analysis 10.02.2015

, author:

Piotr Lonczak

Poor reports from China responsible for heightened risk aversion. The CHF/PLN stayed above 4 zloty. The Polish currency dropped for a second day in a row.

The performance of Asian economies has deteriorated. The major concern is China – the second largest economy in the world. Recent reports on international trade showed a clear slowdown of expansion as imports dropped 19 percent on a yearly basis – more that a 3 percent drop expected.

Today's reports on price developments also missed projections and pointed at further slowdown. The consumer prices growth eased to 0.8 percent on a yearly basis – the lowest level in five years. Moreover, the industrial prices pace moved deeper into a negative territory to minus 4.3 percent from previous minus 3.3 percent.

Given recent reports, it is clear the economy is slowing further as the whole region does. In 2014 the China GDP stood at 7.4 percent – less than target of 7.5 percent set by the government. Although the slowdown increases the probability of more stimulus actions from the People's Bank of China and from government, this fact has not resulted in a significant drop of negative sentiment.

Moreover, the industrial production growth in the United Kingdom missed forecast (it stood at minus 0.2 percent, less than plus 0.1 percent expected). Reports suggested a further deterioration of economic conditions. The British economy has been seen as the best performer among developed countries just after the US economy, but currently this view is more negative. As a result, the expectations for the Bank of England to rise rates have been shifted into 2016.

The backdrop for today's poor economic reports are the Greek turmoil and the Ukrainian crisis. These are the major risk sources for now, and every additional negative information pushes investors to move to safe haven assets and drop risk assets.

CHF/PLN above 4 zloty

Negative sentiment in the financial markets pushed up the Swiss frank. The EUR/CHF stayed around 1.0445 – the level below the 1.05-1.10 band accepted by the Swiss National Bank.

A strong frank will increase pressure on the SNB to intervene, as the currency rate moved away from its unofficial target. The currency will probably weaken if the sentiment improves. The SNB is active in the market, what was confirmed by the central bank's president Thomas Jordan and the figures on currency reserves and sight deposits.

The factor that could push the frank lower was today's report on inflation. The drop in consumer prices was the strongest since 2013, but the drop was also smaller than expected. Thus, the impact of this factor was eventually limited.

A weaker zloty

The zloty is pressured since Monday, as sell-off of risk assets strengthened in the markets. The CHF/PLN hovered above 4 zloty. The euro and dollar also posted significant gains. Wen can see a similar developments in other currencies in the region.

The Polish currency was affected by the risk aversion that stems from the Greek turmoil and the Ukrainian crisis. Other factors like poor reports only enhanced the major sources of negative sentiment. Given current circumstances, the zloty will rather stabilize at current low level and will remain susceptible to situation in the broad market, that could trigger further drop.

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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