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Afternoon analysis 25.04.2016

, автор:

Piotr Lonczak

Risk aversion prevailed in the markets before the Federal Reserve meeting. The German Ifo index suggest an ongoing improvement. The zloty posted severe losses. The euro above 4.40 zlotys and the dollar above 3.90 zlotys. The Swiss franc above 4 zlotys.

On Monday the market sentiment deteriorated further. The risk aversion prevailed in the stock markets. Today all major indexes dropped. Moreover, the oil price declined with other basis commodities.

The factor responsible for the current situation are expectations before the Fed's policy decision due on Wednesday. Although the Fed is expected to leave rates unchanged, the central bank may point at June as a possible moment for interest rate hike. The US central bank officials have been constantly saying about two hikes this year. In contrast, the futures suggest do not comply with a similar view.

The probability of hike in June is about 20 percents. The need to adjust the market expectations to the Fed's plans was responsible for negative reactions in the markets.

Cautious optimismRisk aversion prevailed in the markets before the Federal Reserve meeting. The German Ifo index suggest an ongoing improvement. The zloty posted severe losses. The euro above 4.40 zlotys and the dollar above 3.90 zlotys. The Swiss franc above 4 zlotys.

On Monday the market sentiment deteriorated further. The risk aversion prevailed in the stock markets. Today all major indexes dropped. Moreover, the oil price declined with other basis commodities.

The factor responsible for the current situation are expectations before the Fed's policy decision due on Wednesday. Although the Fed is expected to leave rates unchanged, the central bank may point at June as a possible moment for interest rate hike. The US central bank officials have been constantly saying about two hikes this year. In contrast, the futures suggest do not comply with a similar view.

The probability of hike in June is about 20 percents. The need to adjust the market expectations to the Fed's plans was responsible for negative reactions in the markets.

Cautious optimism

In April the Ifo index for the German economy dropped to 106.6 from 106.7 in the prior month. The reading was little below the forecast 107. However, the report suggest strengthening of positive tendencies in the economy.

In the comment to the report it was stressed that the assessment of the situation remains positive. Although the companies said the current situation deteriorated, the expectations for future improved for the second time in a row. Moreover, the projection for the output level increased. Moreover, rising capacity utilization remains above the long term average.

However, the assessment of the current and futures situation in wholesale and retail trade deteriorated. All in all, the measure remained above the long term averages. In contrast, the sentiment index in construction sector turned positive. It was due to improvement in the current situation, but the expectation for future developments remained negative.

The latest data from the German economy suggest that the economic slowdown was only transitory. A similar tendencies were shown by the ZEW index and the PMI reports. Moreover, the data on industrial production and international trade were better than expected. As a result, one can conclude the rebound will continue in the eurozone. However, the expansion remains subdued.

Zloty's slide

Developments in the zloty's market suggest the assessment of the Polish currency remains negative. The zloty posted losses against all its major pair. The euro exceeded 4.41 and the dollar 3.92 zlotys. The Swiss franc moved above the 4 zlotys level.

The zloty's drop could have been caused by rising probability of the rating cut by the Moody's agency. Moreover, global investors may consider the Polish assets as not attractive. Conservative investors may be reluctant due to heightened political risk and risk taking investors may seek higher yields. Given the situation, the zloty may drop further.

In April the Ifo index for the German economy dropped to 106.6 from 106.7 in the prior month. The reading was little below the forecast 107. However, the report suggest strengthening of positive tendencies in the economy.

In the comment to the report it was stressed that the assessment of the situation remains positive. Although the companies said the current situation deteriorated, the expectations for future improved for the second time in a row. Moreover, the projection for the output level increased. Moreover, rising capacity utilization remains above the long term average.

However, the assessment of the current and futures situation in wholesale and retail trade deteriorated. All in all, the measure remained above the long term averages. In contrast, the sentiment index in construction sector turned positive. It was due to improvement in the current situation, but the expectation for future developments remained negative.

The latest data from the German economy suggest that the economic slowdown was only transitory. A similar tendencies were shown by the ZEW index and the PMI reports. Moreover, the data on industrial production and international trade were better than expected. As a result, one can conclude the rebound will continue in the eurozone. However, the expansion remains subdued.


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