Afternoon analysis 17.05.2016:
Lower risk of the Brexit has a much greater impact on the pound than the macro data. After close to expectations US data, investors are awaiting the comments from the FOMC members. The zloty keeps gains after Moody’s decision.
In the recent hours, a few polls have been published on the UK referendum. Yesterday there were two surveys conducted by the ICM (telephone and online). Both were concluded on May 15th and confirmed a significant difference between the surveys run electronically vs run on the phone.
The online survey showed a slight margin of Brexitu supporters (42% to 41%), but the telephone one confirmed again a strong lead by the EU camp (43% to 34%). Both polls were in line with the most recent trends.
However, in the ORB / The Daily Telegraph survey supporters of the remain camp gained a lead of 15 percentage points (55% vs 40%). According to Reuters the telephone survey was taken on 800 people sample. When comparing the data to the historical results, it is clear that the Brexit opponents obtained the best result since mid-February.
The pound rapidly strengthened. The messages hit the wire at around midnight. It was also after the US market closing bell, and before the opening in Asia. Around midnight the liquidity of the market is relatively thin what probably increased the scale of the movement. Interestingly enough, the sterling maintained gains despite much lower readings in the core inflation from the UK. It rose only 1.2% y/y while the estimations were around 1.4% y/y. This shows that the market primarily focuses on polls, rather than on macro data. Such situation will probably continue in the coming weeks, unless similar results to the ORB repeats several times. For now, however, it is too early to expect such outcome.
No surprises from the US
In our earlier analysis we focused on the possibility that the macro data may generate some signals for the FOMC. Overall, however, real estate, inflation and industrial production publications were close to the estimates.
The core CPI rose by 2.1% y/y and 0.2% m/m, which was exactly in line with the consensus. The m/m headline reading was slightly above estimates (+ 0.4% vs + 0.3%), but the y/y data was in line with estimates. As a result no breakthrough occurred.
Theoretically, the industrial production was higher than economists predicted (+ 0.7% m/m vs. 0.3% m/m). However, the reading for previous month was revised downwards, and the annual number is still below zero (minus 1.1%). Also, when it comes to manufacturing, which is the net of the mining sector and utilities, the publication was in line with expectations (+ 0.3% m / m). The annual data did not impress either with +0.4% gain.
Close to expectations readings may create an interesting discussion from the FOMC members which is scheduled for this afternoon. If they remain in camp of a hike at the beginning of the second half of the year the dollar may slightly gain despite neutral macroeconomic data.
The zloty remains fairly stable
In the early afternoon the EUR/PLN was traded at around 4.36-4.37. The zloty is slightly weaker compared to the morning but there is still a limited risk that the euro may return toward levels seen before the Moody’s decision.
Stronger volatility can be seen on Thursday. Investors are expected to scrutinize the Polish data for April, especially that readings from the previous month were really weak. If both the industrial production and the retail sales fail to exceed +3% y/y, some of the market participants may fear that low GDP data from the Q1 may continue. It would be a bearish signal for the zloty mainly due to increasing expectations for lower the interest rates.
In a negative scenario the EUR/PLN may even return toward 4.40 mark. However, in our opinion, the pessimistic outcome is an alternative scenario. In our base line view we expect the euro to stay around current level and if both the industrial production and retail sales turns to be higher than the estimated (both above 5.0% y/y mark) the EUR/PLN may even drop toward 4.35 level.
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