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Afternoon analysis 08.09.2014

9 Sept 2014 9:47|Artur Wiszniewski

Investors await next market-moving indicators. The zloty was little changed after rally in the last week. The economic data weakened the yen and the frank.

After an exciting beginning of September, this week began more calmly. This does not mean there is nothing interesting going on in the markets.

Last Thursday the European Central Bank unexpectedly lowered interest rates and introduced asset-backed security purchases. The main refinancing rate and the deposit rate were cut to 0.05 percent and minus 0.2 percent, respectively. Starting from October, the ECB will buy ABSs worth about 700 billion euro.

Mario Draghi announced the ECB move in his speech at the symposium in Jackson Hole at the end of August. However, before the ECB meeting in September, investors speculate that the monetary authorities will postpone the decision to introduce additional measures due to the German defiance and lack of assessment of the impact from previously used measures (record low interest rates and TLTRO). As a result of the ECB move, the euro fell to its lowest since July 2013.

The second key factor for the markets was hope for a ceasefire in Ukraine. The long expected agreement was forged in talks in Minsk and it has become binding since Friday afternoon. Although, information agencies have informed on fights in eastern Ukraine, the truce is still in force. The European Union said, that it will consider dropping sanctions against Russia, if Moscow upholds a truce.

The conflict is closing to political solution. That was the major driver of the risk-appetite increase in the last week. As a result, the zloty rose against the euro, the frank and the pound. The Polish currency had tried to keep an advantage against the dollar, but the U.S. currency was too strong due to the common currency weakness after the ECB decision.

The pound in the limelight

Due to the lack of potential movers for the EUR/USD (the next FOMC meeting is on 17 September) the pound is in the center of attention. The sterling was battered by the increase of support for Scottish independence. YouGov polls showed, that during the weekend the Scottish independence supporters gained a lead for the first time this year – 51 percent for “Yes” and 49 percent for “No”.

The survey batteredthe pound. The British currency dropped to its lowest since November 2013 against the dollar. The outlook for independent Scotland poses a variety of risks concerning political and economic issues – for example, division of public debt, tax collection or use of the British currency. Until now the UK authorities haven't considered the Scottish secession as feasible. And there is no contingency plan prepared for this scenario.

Negative data for frank and yen

The Japanese yen fell after weak data was showed. The gross domestic product report was worse than expected. The final GDP growth stood at minus 1.8 percent quarter on quarter, lower from 1.7 predicted. In addition, the current balance figures were also below expectations. The surplus shrank to 0.1 trillion yen from 0.13 trillion yen in the previous month and lower than 0.18 trillion expected.

As a result, the Japanese currency dropped near to its lowest since 2008. The weakness of the currency is exaggerated by rumors that the Bank of Japan may introduce additional measures to boost economic growth in the face of uninspiring data. Moreover, the Japanese authorities have started the overhauling of the pension system, whichis negatively influencing the yen. This is due to the plan that the Government Pension Investment Fund may be allowed to invest more in foreign assets. The fund invested 55 percent of its financial means in the Japanese bonds. This factor is considered as negative for the yen.

The frank was also weakened by the poor data. The unemployment rate increased to 3 percent from 2.9 percent in the previous month (unadjusted data). But the report on retail sales was more important. It showed the drop of sales by 0.6 percent on yearly basis, whereas the 2.6 percent growth was expected. In addition, both the frank and the yen fell due to lower demand for safe haven currencies.

The zloty little changed

After a very good week the zloty gave up some recent gains. The Polish currency was fueled by the ECB unexpected move and lessening the Ukrainian crisis and now some positive phenomena are being observed. The zloty exploited weakness of the pound and gained 0.8 percent against the British currency.

Today Elżbieta Chojna-Duch said that the Polish Monetary Policy Council would cut interest rates by 50 basis points in October, Reuters reported. That could have been the trigger for profit-taking due to expectations for interest rates cut in months to come. But given the current circumstances, the zloty will tend to rise as the risk-appetite increase in the markets until the MPC decides to cut interest rates.


9 Sept 2014 9:47|Artur Wiszniewski

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 acknowledgement of the source is prohibited.

See also:

8 Sept 2014 12:30

Daily analysis 08.09.2014

5 Sept 2014 17:19

Afternoon analysis 05.09.2014

5 Sept 2014 12:31

Daily analysis 05.09.2014

5 Sept 2014 10:37

Afternoon analysis 04.09.2014

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