Afternoon analysis 20.01.2017

20.01.2017 16:24|Bartosz Grejner

The British retail sales appeared to be disappointing and wore-off the pound. The zloty remains calm before Donald Trump’s testimony.

Pound and Trump’s testimony

According to the Office for National Statistics, the British retail sales for December was 1.9% lower than it was the month before. Moreover, the market consensus was at the level of negative 0.1%. At the same time, this is its largest decline in the Month over Month interpretation in approximately five years. Even though retail sales increased 4.3% YoY, this result was the lowest in three months, as well as significantly below the market consensus (7.2%).

The baseline indexes were disappointing as well. Sales was at the level of negative 2% MoM and positive 4.9% YoY (against the expected positive 7.6% YoY). The MoM sale was mainly impacted by a decrease in stores, which do not sell food. The online sale index went down by 5.3% MoM. However, it increased by 21.3% YoY. Online sale is 15% of Brits expenses.

Negative data from the British economy wore-off the pound. The GBP/USD went back below 1.23. Today’s main event is Donald Trump’s testimony, which is scheduled for 6.00 PM. Therefore, the EUR/USD has been moving within a narrow range of 1.063-1.068 today. The USD/JPY is near the level of 115. Trump’s statement may cause larger fluctuations on the dollar. Moreover, taking into consideration Trump’s previous testimonies, the dollar is more likely to strengthen, rather than to wear-off.

Stable zloty

The zloty remains stable against the main currencies. The EUR/PLN remains near 4.37. However, the USD/PLN went down from 4.11 to 4.10. If Donald Trump’s testimony contains any statements regarding the economic matters (taxes, in particular), this would strengthen the dollar (most likely 1.06 on the EUR/USD) and cause the USD/PLN to reach approximately 4.15.

Next week’s events

On Tuesday, IHS Markit will publish the initial data regarding PMI indexes for industry and services in January. The market expects that the industrial data from Germany (at 9.30 AM), as well as from the euro zone (at 10.00 AM), will be at a similar level as it was in December. However, the German services data is expected to improve (from 54.3 points in December to 54.8 points). This should translate to a positive reading from the euro zone as well (estimates: 53.8 points).

At 3.45 PM, we will receive the data regarding the industrial PMI from the USA. Since September 2016 (51.5 points), this index has been in the upper tendency. The data for December showed a 54.3 points increase. This was its highest level since March 2015. The market consensus shows a minor decline of this index (54.0 points). Taking into consideration the lack of other significant events on Monday, as well as on Tuesday, the industrial PMI may increase the currency fluctuations on the latter day. However, the scale of these fluctuations seems limited. This is because of a mild monetary policy from the European Central Bank. Moreover, the PMI is less significant for the American economy than the ISM data.

At 10.30 AM on Thursday, the Office for National Statistics will present the initial data regarding the British GDP growth for the fourth quarter. The market consensus is at the level of 2.1% YoY, which is worse than it was in the third quarter (2.2%). Taking into consideration relatively large fluctuations of the pound recently, this reading may increase volatility on the British currency, especially if it’s inconsistent with the consensus.

On Friday, the Bureau of Economic Analysis (BEA) will present the data from the American economy for the fourth quarter. The economic growth for the third quarter was a positive surprise for investors. This translated to an increase in the dollar’s value. Initially (before the first reading), the market consensus was at the level of 2.6% QoQ. However, the initial data from the BEA was at the level of 2.9%. Eventually, the economic growth for the third quarter was at the level of 3.5% QoQ. Currently, the market consensus is at the level of 2.2% QoQ (1.4% QoQ in the fourth quarter of 2015). High economic growth in the fourth quarter of 2016, could confirm a relatively positive trend that has been observed in the American economy recently. This may also strengthen the dollar, due to speculations regarding a faster pace of rate hikes.



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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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