Afternoon analysis 15.03.2016:
The US households still reluctant to spend money. The dollar dropped after the report on the retail sales. The markets are waiting for the Fed's statement. The zloty dropped on inflation report.
Today's data on the retail sales showed that the US households are still reluctant to spend money. Retail sales dropped 0.1 percent on a monthly basis. The reading which excludes transportation equipment showed a similar decline.
Although the results of both indicators were above the forecasts, a more important issue was the revision of the prior month data. The revised estimates showed retail sales and the report excluding transportation equipment dropped 0.4 percent. Earlier the numbers were plus 0.2 percent and plus 0.1 percent, respectively.
However the fact households are not willing to spend money poses severe issue for the Federal Reserve. Earlier there was a notion that the consumption growth will support the GDP at the beginning of the year. Now however, the impact of this factor will be smaller. Moreover, given the situation, consumption will rather not support the inflation rates, thus the probability of the price gauge returns to the Fed's goal in the mid term has declined.
Today's data may push the Fed to lower the pace of tightening. Earlier, the wage report was in a similar fashion. In spite of the lowest level of unemployment in eight years and rising employment wages dropped 0.1 percent in February. This factor will not support the inflation rate.
After the European session the Federal Reserve will release the monetary policy decision and the latest forecasts. The Fed is expected to leave rates unchanged. The most important issue will be the Fed's stance.
Given the latest developments in the financial markets and the reports slightly negative for inflation, the Fed may show a somewhat dovish stance. A similar scenario may result in a weaker dollar and would support the risk assets.
The CSO released data on inflation. The reading was below the forecast. The inflation rate stood at 0.8 percent on a yearly basis against the 0.7 percent forecast. Moreover, the prior month data was revised down to minus 0.9 percent from minus 0.7 percent. The major factors responsible for low inflation were low gasoline and energy prices.
After the inflation report the zloty dropped. It was somewhat surprising. Last Friday the MPC said it will not adjust rates in spite that the NBP cut inflation outlook.
On the other hand, the report on current account balance exceeded the forecast. The surplus stood at 764 million euros against the 400 million euros forecast. However, the report showed that export declined 0.4 percent on a yearly basis.
The hawkish stance of the MPC was supporting the zloty. However, today's data showed that the inflation issue may be larger than previously expected. As a result, the case for lower interest rates may be discussed again.
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