The most important news about the local economy was a rating upgrade by Standard & Poor´s. The rating of local currency and foreign currency debt was lifted to AA- and AA, respectively. Outlook is stable. A change in sovereign-rating criteria was the major factor behind the upgrade. But, S&P also cites low levels of foreign borrowing, banking sector funded by deposits, independent central bank, low inflation and interest rates as important for the decision. On top of that, the higher rating reflects confidence in future reforms and fiscal consolidation.
This positive news stands behind most of the koruna´s recent gains. Good risk appetite was also supportive in the first days of the week. Then, market mood worsened, but the koruna stayed resilient. This is quite typical, but we expect that the higher rating will make the currency even more immune to a negative impact of risk aversion on global markets. It may even benefit from these situations more often than before. However, we still do not believe the Czech currency to become a universally used safe-haven asset.
In the region, the koruna has outperformed its peers. The reason is mostly the rating, but also a higher volatility of the zloty and the forint and some worse-than-expected data from Poland and Hungary.
Soft indicators from European industry have drawn a mixed picture. PMI from Germany and the Eurozone decreased less than expected, while German ZEW and Ifo indices disappointed. The figures will not change the view that a significant slowdown is here and the economies may head for recession.
In the US, durable goods posted a growth that was surprisingly high mostly thanks to aircraft orders. On the other hand, the 2Q GDP growth was revised downwards.
The above mentioned macro releases had some short-lived impact on trading, but markets also focused on the Fed conference in Jackson Hole. Last year it brought an indication of the QE2 and also this time some action was expected. Initially, the expectations were quite high, but optimism then tempered because of elevated inflation and a questionable efficiency of quantitative easing.
Bernanke´s statement left the door open for another round of monetary tools. The Fed is ready to act as recovery has been much less robust than expected and inflation is seen to settle at or below 2 pct. However, the Fed does seem fully convinced and no action was explicitly mentioned. They will consider tools to provide additional monetary stimulus at next monetary meeting that will be extended to two days. First market reaction to the statement was negative, but a correction then came in on hope that the stimulus may still come, although somewhat later.
(2203,96 GBp, -0,58%) week, markets will digest the latest information from the Fed; it has still left room for speculations. Macro calendar is busy. The ISM report and labor market data are scheduled in the US. The industrial activity index may easily fall below 50 points, which would feed recession fears. Also change in payrolls is expected to worsen, although it should stay in positive figures. In the Czech Republic, PMI and retail sales are on the agenda - as usual with a relatively small potential to influence trading.