A record high reading of the Ifo index from Germany. Slightly better than expected GDP readings from the UK. The franc on new lows in relation to the euro. Speculation about the new President of the Fed. The zloty stabilised close to the 4.24 EUR boundary. The CHF/PLN pair close to the 3.62-3.63 level - only 8 gr above the quotations before the "Black Thursday".
Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.
2:30 p.m.: Orders for durable goods in the US for September (estimates: 1.0% excluding means of transport 0.5%),
4:00 p.m.: Sales of new houses in the US for September (estimates: 554k).
Data from Germany and UK
In the morning, the market received positive data from the German economy. The Ifo index, which presents the entrepreneurs' sentiment, has risen to 116.7 pts and reached the highest level in its 25-year history. The data also exceeded by approx. 1.5 pts the market consensus.
Looking at the individual Ifo index' components, it is worth noting the record level of the manufacturing and construction production's sub-index. Significant increases were also recorded in retail sales, but it still remains at a relatively high level. Additionally, the capacity utilisation rate increased to 87.1%, which is clearly above the multi-annual average (83.7%) and increases the chances of further investments. Positive sentiment in Germany suggests that the strong economic situation will be maintained in the coming months, which should also have a positive impact on the economic conditions in Poland.
Data from the United Kingdom was also better than consensus, although in this case, we cannot say it is a spectacular result. In Q3 the UK economy grew by 0.4% QOQ and 1.5% YOY. For both values, these were results exceeding market estimates only by 0.1 percentage points.
The acceleration of the manufacturing production to 2.7% YOY and 1.0% QOQ can be a positive sign. However, construction production presented itself very poorly. In the Q2 there was 0.5% decline in its activity, and in the last is even decreased by 0.7% QOQ, which was the worst reading in less than 5 years. The pound strengthened after the GDP data's publication by about 0.5%. The market probably assumes that the data is favourable enough to maintain relatively high (80%) chances for next week's rate hikes by the Bank of England.
Weaker franc and further speculations about Fed
Apart from data from Germany and the UK, the situation in the market was quite interesting in the morning. The Swiss currency weakened significantly against the euro and the EUR/CHF pair moved closer to the 1.1700 boundary. It is only about 2.5-3.0% less than before releasing the peg by SNB in mid-January 2015.
The reasons for the weaker franc remained unchanged. A significant decrease in the risk of major problems in the eurozone and the growing expectations for interest rate outside Switzerland's borders mean that the safe haven, in the case of the franc, in no longer accurate.
Apart from events in Europe, it is also worth mentioning about further speculations on the new Fed President's election by Donald Trump. According to "The Wall Street Journal", Donald Trump conducted a survey among the US senators on whether they prefer on this position Jerome Powell or John Taylor.
According to Tim Scott, a Republican Senator from South Carolina previously quoted in the WSJ, John Taylor won Trump's questionnaire. John Kennedy, a Republican member of the Senate Banking Committee, stated that he was not able to point who is Trump's favourite. Taylor's choice would probably be beneficial to the dollar and Powell's nomination should have little effect on the US currency valuation.
Stabilisation in the zloty
Yesterday's increase in yields of the US Treasury bond continued the zloty's weakening in the morning. Today, the situation on the Polish currency has calmed down somewhat and the EUR/PLN pair returned to the 4.24 level. Also, the dollar is close to the last fluctuation range, i.e. the 3.60 PLN boundary.
Some positive news came for those who repay loans denominated in the franc. The Swiss currency has significantly weakened on the global market. As a result, the EUR/CHF pair grew to the 1.1700 boundary and for one franc expressed in Polish currency had to be paid 3.62 PLN. This is just 8 gr more than before the "Black Thursday" in mid-2015. Since the French presidential elections, which have significantly reduced the risk of the eurozone's destabilisation, the franc has been gradually losing its value. This trend is further supported by higher expected interest rates outside Switzerland. As a result, CHF loses the position of the safe haven, which should continue to be beneficial for people who repay loans denominated in this currency.
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 acknowledgement of the source is prohibited.
A record high reading of the Ifo index from Germany. Slightly better than expected GDP readings from the UK. The franc on new lows in relation to the euro. Speculation about the new President of the Fed. The zloty stabilised close to the 4.24 EUR boundary. The CHF/PLN pair close to the 3.62-3.63 level - only 8 gr above the quotations before the "Black Thursday".
Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.
Data from Germany and UK
In the morning, the market received positive data from the German economy. The Ifo index, which presents the entrepreneurs' sentiment, has risen to 116.7 pts and reached the highest level in its 25-year history. The data also exceeded by approx. 1.5 pts the market consensus.
Looking at the individual Ifo index' components, it is worth noting the record level of the manufacturing and construction production's sub-index. Significant increases were also recorded in retail sales, but it still remains at a relatively high level. Additionally, the capacity utilisation rate increased to 87.1%, which is clearly above the multi-annual average (83.7%) and increases the chances of further investments. Positive sentiment in Germany suggests that the strong economic situation will be maintained in the coming months, which should also have a positive impact on the economic conditions in Poland.
Data from the United Kingdom was also better than consensus, although in this case, we cannot say it is a spectacular result. In Q3 the UK economy grew by 0.4% QOQ and 1.5% YOY. For both values, these were results exceeding market estimates only by 0.1 percentage points.
The acceleration of the manufacturing production to 2.7% YOY and 1.0% QOQ can be a positive sign. However, construction production presented itself very poorly. In the Q2 there was 0.5% decline in its activity, and in the last is even decreased by 0.7% QOQ, which was the worst reading in less than 5 years. The pound strengthened after the GDP data's publication by about 0.5%. The market probably assumes that the data is favourable enough to maintain relatively high (80%) chances for next week's rate hikes by the Bank of England.
Weaker franc and further speculations about Fed
Apart from data from Germany and the UK, the situation in the market was quite interesting in the morning. The Swiss currency weakened significantly against the euro and the EUR/CHF pair moved closer to the 1.1700 boundary. It is only about 2.5-3.0% less than before releasing the peg by SNB in mid-January 2015.
The reasons for the weaker franc remained unchanged. A significant decrease in the risk of major problems in the eurozone and the growing expectations for interest rate outside Switzerland's borders mean that the safe haven, in the case of the franc, in no longer accurate.
Apart from events in Europe, it is also worth mentioning about further speculations on the new Fed President's election by Donald Trump. According to "The Wall Street Journal", Donald Trump conducted a survey among the US senators on whether they prefer on this position Jerome Powell or John Taylor.
According to Tim Scott, a Republican Senator from South Carolina previously quoted in the WSJ, John Taylor won Trump's questionnaire. John Kennedy, a Republican member of the Senate Banking Committee, stated that he was not able to point who is Trump's favourite. Taylor's choice would probably be beneficial to the dollar and Powell's nomination should have little effect on the US currency valuation.
Stabilisation in the zloty
Yesterday's increase in yields of the US Treasury bond continued the zloty's weakening in the morning. Today, the situation on the Polish currency has calmed down somewhat and the EUR/PLN pair returned to the 4.24 level. Also, the dollar is close to the last fluctuation range, i.e. the 3.60 PLN boundary.
Some positive news came for those who repay loans denominated in the franc. The Swiss currency has significantly weakened on the global market. As a result, the EUR/CHF pair grew to the 1.1700 boundary and for one franc expressed in Polish currency had to be paid 3.62 PLN. This is just 8 gr more than before the "Black Thursday" in mid-2015. Since the French presidential elections, which have significantly reduced the risk of the eurozone's destabilisation, the franc has been gradually losing its value. This trend is further supported by higher expected interest rates outside Switzerland. As a result, CHF loses the position of the safe haven, which should continue to be beneficial for people who repay loans denominated in this currency.
See also:
Afternoon analysis 24.10.2017
Daily analysis 24.10.2017
Afternoon analysis 23.10.2017
Daily analysis 23.10.2017
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