Drops in eurozone production (Daily analysis 12.09.2018)

12.09.2018 13:01|Marcin Lipka

Stabilisation of main currency pairs before the central bank meeting and expected foreign trade reports. Industrial production in the eurozone is decreasing. The zloty remains stable. The current euro exchange rate around midday is 4.31 PLN.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Trade and central banks

There was no new foreign trade information from key US-Chinese parties. There was also no daily press briefing of the White House spokeswoman. This may have been due to the 17th anniversary of the tragedy of September 9/11. However, the issues of additional customs duties on Chinese goods and further actions of Washington are not only crucial for the currency market.

Apart from waiting for reports on customs duties, the market is also starting to position itself before central bank meetings. For the basic currency pairs the most important will be the announcements of the European Central Bank (ECB) and the Bank of England (BoE). Both will be announced tomorrow.

In the context of the ECB, a cautious tone is expected. The situation in the eurozone is clearly weakening (as evidenced by today's very weak data on industrial production). Also in terms of inflationary processes, core prices (excluding fuels and food) are rising very slowly. This does not mean, of course, that the ECB will announce an extension of the quantitative easing beyond 2018 or postpone the date of the interest rate increase beyond summer 2019. However, the dovish signals may come from revised downward inflation and GDP growth forecasts compared to June this year, as well as from much less optimism on the part of ECB head Mario Draghi. It is, therefore, to be expected that the general message from the central bank will be dovish rather than hawkish.

Slightly more optimism can be expected from BoE. However, due to the fact that further interest rate increases are not expected before the first quarter of 2019 and the risks associated with Brexit are still valid, the optimism from the Bank of England will be toned down. It is also worth remembering that the September meeting does not end with a press conference, so impulses will mainly come from "minutes". The basic scenario is a neutral tone, although a slightly optimistic tone cannot be ruled out, because of the recent acceleration in wage growth.

Tragic data on industrial production in the eurozone

Already last week's data on German industrial production in July was weak. Even greater concern was caused by today's readings from Italy, which showed a decrease in this sector of the economy by 1.3% year-on-year (a consensus assumed an increase of 1.6% year-on-year). Unfortunately, production in the euro one also decreased (by 0.1% year-on-year), which is the first decline in one and a half years and one of the worst readings in 5 years.

A decrease in production has been recorded in Ireland, Italy, the Netherlands and Portugal. Of course, one can try to find "explanations" for this fact in the form of the high base last year or the high variability of production data in Ireland. However, apart from these "masking" attempts, we can see that, unfortunately, the economic situation in the eurozone is much weaker than previously expected. This should be a burden on the euro, especially given that the US economy is growing surprisingly well.

Stable zloty

Changes in the Polish currency are small. The EUR/PLN fluctuates close to the 4.31 boundary. Data on industrial production may be a slight support for the zloty or the Czech koruna, which in comparison to the EU look great. However, high readings for Poland (7.9% year-on-year in July) start to collide with the results at the level of 0.0% (month-on-month, seasonally adjusted) in June and July. It can be seen, therefore, that since the second half of the year the economic situation is weaker and good annual results can only be history. It would also be naive to hope that our region can develop very quickly if there is a slowdown in growth in the eurozone or in Germany.

In the coming hours, reports on foreign trade should remain the most important. If no key information from leading representatives of the US administration appears, then the zloty should remain close to current levels. If the rhetoric is tightened and additional duties on China are announced, the zloty may depreciate during the US session.


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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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