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Afternoon analysis 10.12.2015

10 Dec 2015 16:37|Marcin Lipka

Yves Mersch from the ECB said the probability of more stimulus is rather minimal. The euro dropped as the risk appetite increased. The zloty remained at the low level.

Another official from the European Central Bank trimmed the expectations for additional stimulus. Yves Mersch, an ECB board member, said that the large majority in the ECB is against additional stimulus. Mersch assessed that decision to reinvest maturing bonds will inject billions of euro (according to Reuters).

Remarks made by Mersch were published after similar statements from Ewald Nowotny. On Wednesday the Austrian Central Bank President said that the financial markets have interpreted comments from the central bank members in a wrong way. Nowotny said the ECB's decisions were appropriate.

In the last week the ECB disappointed investors as it did not increase the level of monthly asset purchases. The target has been kept at the 60 billion euro level in spite of forecast for even additional 20 billion euros. However, the ECB decisions to extend the program to March 2017, reinvest maturing bonds and cut deposit rates were not enough.

Theoretically, limited probability of additional ECB actions should have supported the euro. However, we have seen the EUR/USD dropping. The move was caused by the fact that the dovish ECB stance and expectations that the Federal Reserve will raise rates have made the euro a financing currency in the carry-trade operations. As a result, the euro declines when the sentiment is positive.

Weak data

Today's data from the US labor market were below the forecast. The number of unemployment claims increased to 282k from 269k in the prior week. It was above the 266k that was forecast and the highest level in five months.

However, a weaker than expected result did not affect investors as a reading below 300k reflects an ongoing expansion of the labor market. As a result, the report did not change the expectations before the Federal Reserve meeting in the next week. The last Fed's meeting this year will probably result in the first interest rate hike in almost a decade.

Moreover, November's data from the labor market also supported the case for tightening. Employment in non-farm sector increased 211k after rising 298k in the prior month. Given the situation, the probability of interest rate hike exceeded 80 percent (according to futures market).

The zloty as low level

In spite of some improvement in the broad market sentiment, the zloty remained at a low level. The Polish currency remained under the influence of negative domestic factors. Given the coming interest rate hike in the US and the ECB's reluctance to provide more stimulus, the probability of a stronger zloty is limited.


10 Dec 2015 16:37|Marcin Lipka

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:

9 Dec 2015 17:10

Afternoon analysis 09.12.2015

9 Dec 2015 12:54

Daily analysis 09.12.2015

8 Dec 2015 17:11

Afternoon analysis 08.12.2015

8 Dec 2015 12:52

Daily analysis 08.12.2015

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