Daily analysis 27.10.2016:
The British GDP is better than the consensus. However, its particular components may indicate the forthcoming deterioration of the British economy in the near future. The Swedish Riksbank pushed the krone to its multiple-year minimum against the euro, as well as against the dollar. The EUR/PLN is near 4.33. The Polish currency is sensitive to external information.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 14.30: Orders for durable goods from the USA (estimations: 0.0%; excluding transport positive 0.2%).
- 14.30: New jobless claims from the USA (estimations: 255k).
Many questions regarding British GDP
At first sight, the British data seems to be a positive surprise. The GDP increased 0.5% in quarter on quarter interpretation, against the expected 0.3%. In year on year interpretation, the GDP is better as well (positive 2.3% vs positive 2.1%). However, this data seems to be misleading when it comes to the average condition of the economy as a whole.
Only the services sector had a positive contribution to the GDP. On the other hand, the industrial production including processing, as well as the construction sector, have decreased by 0.4% q/q and 1.4% q/q, respectively. This shows that consumers behaviors have basically remained the same (confirmed by retail sales data). However, companies are definitely more pessimistic regarding the forthcoming quarters.
Currently, it’s crucial how will the Bank of England interpret the data during the meeting on November 3rd. This institution may assume that consumption will increase investments in the forthcoming quarters. However, another option is that entrepreneurs will limit employment which would impact households expenses negatively. This discussion may show the sentiment within the BoE.
Chances for a decrease in interest rates were small before today’s data. They will probably decrease even more after the GDP reading. It’s worth keeping in mind that Mark Carney’s comments from Tuesday were showing that the central bank will rather not continue the monetary easing in the current situation. In general, today’s data is positive for the pound in the short-term. However, they bring relatively minor changes in a few-month perspective. The BoE meeting should tell whether the pressure on the pound will clearly change or not.
Riksbank remains extremely dovish
The monetary policy of the Swedish central bank has been mild for many quarters. However, this institution continues to surprise with increasingly accommodative attitude.
Despite the fact that interest rates remained unchanged (negative 0.5%), the Riksbank decided to extend their promise of not increasing them over the next six months (until the beginning of 2018). Moreover, macroeconomic estimates show that interest rates in Sweden may be decreased to negative 0.6%.
The announcement also states that the QE will most likely be extended until the end of the year. Moreover, it’s possible that it will become extended in the future. To justify its increasingly mild approach, the Riksbank mentions the danger of a slower than expected inflation increase in 2017 (1.4% vs 1.8% estimations from September).
The reaction of the Swedish krone was negative. The EUR/SEK is currently near 9.8, which is its highest level in six years. Moreover, the Swedish currency is the weakest against the dollar since the beginning of 2009. Taking into consideration the fact of sustaining a very mild monetary policy, it currently seems very unlikely that the SEK will work-off its losses rapidly.
The profitability of bonds in the global market continues to grow. The German ten-year treasury bonds are reaching the 0.15% level. The profitability of the American bonds is growing as well. Therefore, growths in the Polish market shouldn’t be surprising. However, this is more likely an adjustment to the current global situation, rather than a worse opinion regarding the Polish market.
However, it seems that many market participants don’t share this view. Perhaps some Carry Trade strategies are also closing their positions in the situation of a clear increase in volatility in the emerging markets. As a result, the zloty’s sensitivity to global moves is quite large. Moreover, it causes a nervous behavior of the Polish currency. We can’t expect this to translate to a fundamental depreciation trend on the PLN, especially taking into consideration that the QE extension by the ECB should limit increases in profitability in the base case markets of the euro zone.
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