Daily analysis 18.05.2016

, author:

Piotr Lonczak

The hawkish comments from the Federal Reserve representatives, as well as the portion of solid data, have increased the likelihood of the hikes. The dollar gained against the euro, as well as against the other currencies. The zloty gives back the gains, which it achieved after Moody's decision.

Tuesday's data from the American economy was a positive surprise. Inflation report indicated an acceleration of the pace of prices growth. Consumers inflation increased by 0.4% against the past month, and the base case inflation was by 0.2% higher. Thus, the data was better than expected.

The data regarding the industrial sector was also better than the forecasts. The production increased 0.7% against the past month (the market's expectations were at the level of 0.3%). However, the data from the past month had been revised down, from 0.6% to negative 0.9%. The data regarding the second quarter suggests that this period may be definitely better than the first quarter.

Even though, better reports were not enough to push the dollar up. However, the definitely hawkish comments from the Federal Reserve representatives had a fundamental impact.

Dennis Lockhart, chairman of the Atlanta Federal Reserve, claimed that the market's expectations regarding the condition of the American economy are excessively pessimistic (source: Financial Times). He thinks that investors incorrectly estimate the probability of the hikes. Regarding this, Lockhart has indicated inflation data and other reports, which suggest a growth acceleration after a relatively weak first quarter. This means that interest rates may even go up at the Federal Reserve's meeting in June.

Other comments from the Federal Reserve representatives were similar. John Williams, chairman of the San Francisco Fed said about a possibility of two, or even three hikes this year (source: Bloomberg). In his opinion, the development of economic situation allows to expect such scenario.

Quotations of the terminal contracts show that the probability the hikes at the FOMC meeting in June is estimated for 19%. Even though this is not much, it is still a higher level than a few days ago.

As a result, the dollar clearly strengthened. The American currency reached the highest level against the euro since April 26th. Enforcement of the dollar coincided with an intensification of risk aversion. As a result, the raw materials have been overvalued. This situation also causes the emerging markets currencies to lose value. Today's publication of the protocol from the FOMC meeting is of a big significance. If the minutes increase the probability of hikes, the current tendencies may strengthen.

Zloty gives back the gains

Recently, the zloty took advantage of an unexpected decision of Moody's agency. Eventually, it did not downgrade Poland's loan credibility. It only decreased perspective of the rating. This means that the likelihood of cutting the rating in the future becomes higher. However, the base case scenario assumed a downgrade by one grade. Thus, a positive surprise allowed the zloty to strengthen.

However, this week we have heard a critical opinion regarding the situation in Poland by the International Monetary Fund. This, combined with a deterioration of sentiments in the wide market, caused a clear wear-off of the zloty, especially after today's session. Macroeconomic data from the Polish economy are of a great significance for the zloty. This data is to be published within the next days. If the reports are yet again disappointing, a pressure on a decrease in interest rates will grow. This will be disadvantageous for the zloty.

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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