Markets quickly recovered from the first panic in response to reports of Iran's rocket attack on US bases in Iraq, when it turned out that there were no casualties in military personnel, and thus the attack was about leveling the field with the US for Friday assassination of the Iranian commander. The parties do not seem to care about escalation and this is also the approach of investors. There is still a risk of exacerbation of the conflict, but for now, it only inhibits the return to an unrestricted risk rally.
US President Donald Trump wrote after the attack that "all is well," which further reassured investors. Of course, in the coming days new military activities cannot be ruled out, which will destroy this peace, but market participants prefer to wait for events than to take pre-emptive action. After strong movements tonight at USD / JPY, gold and oil, you can see how closely the information is tracked to quickly take a position, but also to reverse it quickly when there is not enough fuel to continue moving. It also discourages taking tactical positions for longer, if one piece of information can quickly hit stop loss. Generally, the markets are convinced that we will soon forget about geopolitical risk from the Middle East and move on to a substantive assessment of macro foundations. In this topic, however, we don't get much lately (e.g. PMI / ISM readings were mixed), so it will be equally easy to disappoint and extinguish the optimism brought after December.
I think that gold still has an easier path higher, be it from rising risk aversion or the lack of a clear inflow towards USD. Swings such as the one from the night will block the index rally, where there will be more and more queries about the end of increases, unless the data allows otherwise. Without accelerating the stock market (and indecisively USD) USD / JPY should finally have an impulse for deeper declines. EUR / USD is tied up by expectations of the ECB and Fed policy - I expect increases, but only when market participants understand that there is no room in Euroland for further loosening, and the Fed can cut down at least again this year.
Finally, the two-day meeting of the Monetary Policy Council may finally have a measurable impact on the zloty. I do not mean changes in interest rates - here market expectations are consistent. It will be interesting, however, how does the Council assess yesterday's surprise in reading CPI inflation in December? At the end of 2019, the price increase was 3.4 percent. y / y, much more than expected 2.8% and 2.6 percent in November. Inflation approached the upper limit of the fluctuation range for the NBP inflation target (1.5-3.5%). Food and fuels have conquered the index, and we are still ahead of energy price increases (January and February), so in the first quarter inflation will certainly rise above 4%. Increases in food and energy prices are not what the central bank has an impact on, but inflationary pressure spills over to core inflation (3.2%). Still, it seems that the resistance to monetary policy tightening, especially in the person of NBP governor Glapiński, is strong enough that it may be impossible to find a majority in the Council for voting for a raise. It is more likely that the MPC will downplay the inflation spike and, assuming further gradual slowdown in price growth, will maintain a neutral bias. If it is obvious for the markets that the MPC will not respond to higher inflation and negative real interest rates, a new permanent weakening factor of the zloty will appear. will maintain a neutral attitude. If it is obvious for the markets that the MPC will not respond to higher inflation and negative real interest rates, a new permanent weakening factor of the zloty will appear. will maintain a neutral attitude. If it is obvious for the markets that the MPC will not respond to higher inflation and negative real interest rates, a new permanent weakening factor of the zloty will appear.