Afternoon analysis 07.02.2017

The American trade deficit decreases. The forthcoming elections in Europe pressure the euro. The EUR/PLN is above 4.30.

Positive data supports the dollar

Today, the Bureau of Economic Analysis (BEA) informed that the deficit in the American foreign trade was at the level of 44.3 billion dollars in December (estimates: 45 billion dollars). This result was caused by increasing export (positive 5 billion dollars). Import increased by 3.6 billion dollars. Moreover, the capital goods export (excluding vehicles) increased by 3.3 billion dollars. We should emphasize an increase in export of planes (1 billion dollars).

President Donald Trump has often mentioned his will to improve the trade conditions, as well as the impact of weak foreign currencies on the American trade deficit. Therefore, the American administration’s reaction may be significant for the dollar. The US trade deficit with China reached the level of 30.2 billion dollars. Moreover, the trade deficit with Japan increased to 6.8 billion dollars. The latter may appear significant for the yen. However, the deficit with Mexico decreased significantly (by 1.2 billion dollars) and is currently at the level of 4.6 billion dollars. The deficit with the EU decreased as well (by 0.8 billion) and is currently at the level of 12.9 billion dollars.

The above data allowed the dollar to sustain its gains from this morning. The EUR/USD remained below the 1.07 level. As a result, the dollar’s index (DXY) remains 100.5 points. This was consistent with pressure on the euro, which has been caused by political uncertainty in the euro zone. This renewed the anxieties regarding Brexit. Because of them, the pound has been losing value for another consecutive day. Today, the GBP/USD was pushed to the level of 1.2350 (the lowest in more than two weeks). However, the pair went up to the level of 1.24 before the opening of the American session. Nevertheless, the pound anticipates the industrial production data for December on Friday.

Unemployment rate for January

Today, the Ministry of Family, Work and Social Policy, informed that the unemployment rate for January was at the level of 8.7%. This is by 0.3% more in comparison to December, but at the same time by 1.5% less in the YoY interpretation. According to the Polish Press Agency, Stanisław Szwed of the Ministry, warns that this index may continue to deteriorate. He suggested that another increase is possible, but it’s difficult to estimate whether it will be at the level of 0.2% or 0.3%. Moreover, the Ministry estimates that the unemployment rate will reach the level of 8%, or lower, by the end of 2017.

The zloty lost approximately 0.03-0.05 PLN against the main currency pairs. The EUR/PLN went above 4.30 and the GBP/PLN neared the level of 5. Due to a positive condition of the dollar, the USD/PLN neared the level of 4.04. However, we have been observing the zloty’s appreciation over the past few weeks. Therefore, we may be dealing with a natural work-off. If the EUR/PLN ends this day below 4.30, this may be a positive signal for the zloty.

Tomorrow’s events

Today and tomorrow, the Monetary Policy Council meeting will be held. The Council members will decide of the interest rates level (current level: reference rates – 1.5%; deposit rates – 0.5%). The market estimates no changes in this matter. Adam Glapiński, the MPC chairman, said at his previous press conference that the Council most likely will not consider rate hikes until the beginning of 2018. Therefore, we shouldn’t expect any changes in Poland’s monetary policy in 2017.

The only factor that could change this attitude would be a significant inflation growth. However, this is relatively unlikely, because the recent (global) increase in prices was mainly fuels by the increasing raw material prices (oil in particular). However, the oil prices have recently stopped growing and the most likely won’t increase as much as they were over the past few months, due to the decision from OPEC regarding the production limits. Therefore, they should stop impacting inflation. We don’t expect any statements from the MPC press conference (4.00 PM), which would impact the zloty’s evaluation significantly.

At 4.30 PM, the Energy Information Administration (EIA) will present its weekly report regarding the American oil market. Investors will focus on potential changes in the oil supply, as well as on changes in the oil derivatives supply. Both of these indexes have been increasing over the past four weeks, despite limits in the oil supplies. Last week’s report also indicated a visible decrease in the American oil production (negative 49k). This slightly decreased the supply pressure on the oil prices.

The above mentioned production limits, as well as increasing likelihood of the slate oil production in the USA, are keeping the oil prices within the range of 50-60 dollars per barrel. The oil market has been full of anxieties over the American oil production growth. Last week, Baker Hughes informed that the amount of active drills reached its highest level since the end of October 2015 (583). Another factor that may limit the oil prices growth is an increase in the oil demand in China, which was caused by the lowest GDP growth in twenty-six years. Additionally, today Reuters informed that in 2016, an increase in the oil demand in China was at the level of 2.5%, whereas in 2014 and in 2015 it was at the level of 3.8% and 3.1%, respectively.