Afternoon analysis 13.01.2017

13.01.2017 17:12|Bartosz Grejner

Retail sales in the U.S. slightly disappoints but PPI inflation exceeded expectations. The consumer sentiment in the US. was somewhat below what was anticipated, however, it’s still close to recent highs. Calm trading on the zloty before Poland’s rating revision.

Mixed U.S. data

The U.S. Census Bureau published today data regarding the retail sales in December, which were marginally below market expectations. They were up by 0.6% MoM – an increase of 0.7% was expected. The gain in the core retail sales (excluding automobiles) was 0.2% MoM, also below what the market anticipated (0.5%). However, year-over-year, there was an increase of 4.1% (core: 3.4%).

On the other hand, the PPI inflation data published by the Bureau of Labor Statistics turned out to be slightly better – the core index surprised on the upside because a decrease (in relation to the previous month) was expected. It was up by 1.6% YoY in December, exceeding expectations of 1.5%. The University of Michigan consumer sentiment data came in last. Although a reading of 98.1 was below of what the market anticipated (98.5), the index was still close to thirteen-year highs from the previous month (98.2).

Even before the publication of this index, the dollar visibly gained value – the EUR/USD pair dropped to 1.06 level, meanwhile the USD/JPY traded above 115. Consequently, the dollar index (DXY) increased to 101.6, achieving the daily high.

Inflation in December in line with expectations

The Central Statistical Office reported today that the CPI inflation in Poland gained in December by 0.8% YoY (and 0.7% MoM) – in line with expectations and preliminary data from the end of December. The petroleum prices increased the most: 8.9% in comparison to December ‘15 and 5.3% in relation to the previous month. This is mainly a result of an increase in the price of oil in this period. Also, a 2.7% YoY (1.3% MoM) increase in the prices of food is also worth mentioning.

The Polish National Bank (NBP) published the balance of payments in November today. It reported that there was a deficit on the current account of 427 mln euro (a deficit of 340 mln was expected). October’s data were revised down from -393 mln to -531 mln. The positive aspect of the data is the inflow of funds from the European Union (on the capital account) which in November amounted to 4.1 bln euro, while in October the inflow of those funds was nearly zero.

The Polish currency was trading relatively calm today – the main currency pairs oscillated around the midday levels. A global weakness of the dollar and the pound caused their value (expressed in the zloty) to fall even below the 4.10 and 5.00 levels, respectively. However, after aforementioned U.S. data were published, the USD/PLN went up to 4.13. The zloty still remained somewhat weaker in relation to the Hungarian forint – the PLN/HUF pair traded close to last days’ lows.

Next week’s preview

There aren’t any key events scheduled for Monday – at 11 am Eurostat will publish the data regarding the November’s trade balance in the eurozone. It has had a surplus in the trade balance in recent years (we’ve been observing an upward trend since 2011 when there was a deficit for the last time). However, the surplus in October proved to be far lower than anticipated – a balance of 20.1 bln euro was 9 bln euro less than the market expected and 6.5 bln less than in September. Currently, the median of market expectations points to a slightly higher surplus, i.e. 22 bln euro. A weaker euro will probably support the trade balance because of it somewhat limited appreciation potential due to the accommodative monetary policy of the European Central Bank.

Depending on what the rating agencies’ decision regarding the rating of Poland will be (due to be released on Friday evening) and when exactly they will be published, on Monday the investors could still be discounting the decision. Just as we’ve said in the recent days, we don’t expect a downgrade of the rating. However, should it occur, its negative effect on the Polish currency would be relatively limited – for instance, because one such agency downgraded it earlier.

The most important event of the coming week will probably be the European Central Bank’s (ECB) decision regarding the interest rates and the asset purchase program which will be known at 1.45 pm. A change to the aforementioned isn’t expected (the asset purchase program was changed only at the December meeting), however, the markets will closely listen to Mario Draghi, the chief of ECB, whether or not he will suggest the “tapering” of the asset purchase program. Such a suggestion from Draghi could support the euro which has been visibly weakened by ECB’s policy.

On Thursday, key data for the Polish economy (in the context of GDP growth) will be published. The Central Statistical Office will share data regarding the industrial production (including construction) and retail sales. This publication could have a deciding impact on the GDP growth in the fourth quarter: the October reading was disappointing, however, the November data positively surprised. If the Thursday readings will significantly deviate from the market consensus (+1.6 YoY industrial production, -13.3% construction production, +6.2 retail sales), they could bring about more volatility to the zloty due to a change in the expected GDP growth in Q4 and the whole 2016.

 


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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