Afternoon analysis 17.02.2017

17.02.2017 15:29|Bartosz Grejner

Positive data from the Polish economy. The dollar remains relatively calm.

Limited reaction of zloty

Today’s data from the Polish Central Statistical Office (GUS) was better than expected. In January, the industrial production increased 9% YoY and the retail sales increased 11.4% YoY. Both of these indexes quoted their highest dynamics in approximately five years. The data regarding the PPI was also better than estimated.

When it comes to the industrial production components, the industrial processing quoted the largest growth (10.2% YoY). Moreover, the building production increased 2.1% YoY. This was a positive surprise, since this index was decreasing in the Year over Year interpretation for thirteen consecutive months.

When it comes to the retail sales components, the largest increase was quoted in the fuel category (28.9% YoY). Moreover, the sales of cars and motorcycles increased 12.9% YoY. This data shows that the trend from the last two months of 2016 continues. This allows the market to estimate that this year’s GDP growth may go above 3% YoY.

The zloty’s reaction was limited. Shortly before the data, the EUR/PLN was at the level of 4.33, only to reach the level of 4.34 after the readings. Even though the PLN/HUF was near its three-weeks minimum, this pair was relatively stable. However, today’s data should support the zloty and the EUR/PLN may soon return near the level of 4.30.

Dollar is calm

Apart from the negative retail sales from the United Kingdom, there were no significant events that could impact the currencies today. The GBP/USD went to the level of 1.243, but the pound remains weak. The EUR/USD was moving in a relatively narrow range as well.

The EUR/USD returned from the level of 1.064 to 1.067. However, the Japanese yen was clearly stronger and gained approximately 0.5% against the dollar. The USD/JPY went below 113. This caused the dollar’s index to remain within a relatively narrow range of 100.4-100.7 points.

Next week’s events

Due to President’s Day on Monday, the New York stock market will be closed. Therefore, there will be no significant data on that day. However, IHS Markit will publish the industrial, as well as the services PMI for Germany and the euro zone for February. Since February 2016, we have been observing an upper trend in the industrial PMI for both Germany and the euro zone.

The market estimates a minor decline of this index by 0.4 points and by 0.2 points for Germany and the euro zone, respectively. The services PMI is estimated to increase by 0.1 points (the euro zone) and by 0.2 points (Germany). This index has been increasing over the last five months, in the case of the euro zone. An opposite situation has been observed in the case of the German economy.

The above mentioned readings will most likely have a minor impact on the euro, due to the European Central Bank’s mild monetary policy. However, if the data is significantly inconsistent with the consensus, this may cause a larger reaction on the euro, due to the recently weaker dollar.

Also on Tuesday, Markit will present the American industrial, as well as the services PMI. Even though this data is not as significant for the American economy as its equivalent from the ISM institute, it may give a hint regarding the general condition of both of these sectors. Both of these indexes have been increasing since October. Their results from January were at the level of 55 points (service) and 55.6 points (industry). Similar readings for February would support the dollar. However, the market will most likely anticipate the FOMC minutes, which will be published on Wednesday. Therefore, this data will have a limited impact.

On Wednesday, the British Office for National Statistics (ONS) will publish another reading regarding the British economic growth in the fourth quarter. We don’t expect this reading to significantly deflect from the initial readings (2.2% YoY and 0.6% QoQ). However, taking into consideration the pound’s recent sensitivity to the macroeconomic data, there may be an increase in fluctuations of the British currency.

Also on Wednesday, Eurostat will present the data regarding the consumer inflation in the euro zone. According to this index’s initial reading, it reached the level of 1.8% YoY. This was by 0.7 points higher than the readings from December, which was mainly caused by increasing prices of raw materials. We don’t expect this data to have a significant impact on the euro, due to the fact that this is the second reading.

On Wednesday evening, the FOMC will publish minutes from its previous meeting. The market expects a hawkish tone of this message. This is because Janet Yellen’s testimony in front of the Congress, consisted of relatively hawkish views. She said that the lack of rate hikes would be a mistake. Therefore, we can expect significant fluctuations on the dollar, which eventually should support the American currency. However, if the minutes are not relatively hawkish, this could wear-off the USD.



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