Afternoon analysis 12.04.2016:
The IMF cut the global growth outlook. Bundesbank President Jens Weidmann defended Mario Draghi from criticism. Rising oil and copper helped commodity currencies. The zloty resumed declines.
Today the IMF released its latest forecasts for the global economy. The world GDP growth is expected at 3.2 percent this year, down from 3.4 percent in the previous estimate. The forecast for 2017 was lowered to 3.5 percent from 3.6 percent. The IMF cited raise of populism in the US and the European countries, the British referendum on leaving the EU and the immigration crisis as the potential risk factors.
The US projection was cut to 2.4 percent from 2.6 percent. However, the IMF expects China to growth 6.5 percent against 6.3 percent in the prior estimate. Although the Chinese economy is going to slow down, the deceleration will be rather limited. The eurozone is expected to grow at 1.5 percent pace (down from 1.7 percent) in 2016. In the next year the monetary union is expected to expand 1.6 percent (against 1.7 percent previously expected).
The IMF forecast were rather gloomy. The release stressed the variety of challenges ahead of the world economy. As a result, the report may negatively affect the market sentiment.
The EUR/USD was stabilizing in a narrow range as the Fed showed somewhat dovish stance and the ECB reiterated it is ready to act.
Yesterday Robert Kaplan, the Dallas Fed President, pointed at June as a possible moment for interest rate hike. His view supports the basis scenario for the interest rates in the US, which assumes two increases this year. Today's data on import prices pointed at a flat path for interest rates as the prices increased only 0.2 percent against the 1 percent forecast.
Bundesbank President Jens Weidmann defended ECB Chief Mario Draghi (Financial Times interview). Recently the German policymakers criticized the ECB for loose monetary stance, which according to them supports populism.
Weidmann said the Frankfurt-based institution has precise goal to fulfill - the inflation rate close to the 2 percent level. He criticized the comments from German lawmakers as a possible violation of the central bank independence. Weidmann's stance may be surprising as he is the major critic of the monetary policy conducted by Mario Draghi.
The oil price rebounded to the highest level in four months as the optimism increased before the meeting of oil producing countries. Investors are expecting the 17 April meeting will result in an agreement to freeze the output level. Moreover, the copper price gained, which supported the commodity currencies.
The zloty dropped in spite of hawkish MPC
The zloty did not exploit hawkish comments from the MPC's Jerzy Osiatyński (source: PAP). He cited factors which may lead to interest rate hikes. However, Osiatynski believes the most appropriate would be to leave rates unchanged. In contrast, yesterday Jerzy Zyzynski and Eryk Lon argued for interest rate cuts.
The core inflation data surprised. It dropped to negative 0.2 percent on a yearly basis against the negative 0.1 percent forecast. The report suggests the period of low inflation may be longer than expected. However, today's data will not force the MPC to change its stance. The monetary authorities do not consider deflation as a factor that hurts the GDP growth. The MPC may alter its view if the macroeconomic reports deteriorates.
The IMF increased the forecast for the Polish economy. The Washington-based institution increased expected the GDP growth at 3.6 percent in 2016-17 period. Earlier the IMF expected 3.5 percent GDP in 2016.
In spite of relatively positive atmosphere in the markets the zloty dropped significantly. The Polish currency dropped against all its major pairs. It may signal a prolonged period of zloty's weakness.
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