Afternoon analysis 06.02.2017

According to the Ipsos Mori survey, the decision regarding Brexit will have a negative impact on the majority of the largest British companies. The dollar’s appreciation continues. Due to a positive condition of the zloty, the EUR/PLN went below the 4.28 level.

Brexit is negative for companies

It seemed that the United Kingdom is in for difficult months after the Brexit referendum. However, the macroeconomic data has been showing that the British economy is relatively resistant. Even though that there still is a large likelihood of a decrease in the economic growth, an increase in inflation and a deterioration of the labor market’s condition, the British economy is in a relatively positive condition, in comparison to the other developed economies of the European Union.

Nevertheless, the latest Ipsos Mori survey shows that 58% of the British companies claim that Brexit has had a negative impact on their condition. The survey was conducted among more than one-hundred out of five-hundred largest British companies. Approximately 66% of these companies has started limiting the potential negative impact of Brexit in the forthcoming periods. Moreover, 10% of surveyed companies have decided to transfer their economic activity outside of the United Kingdom.

However, 32% of companies estimate that there will be an improvement within the next five years. The result of this survey emphasizes the significance of agreement regarding Brexit for the British economy. If access to the Single Market is limited, the percentage of the British companies that wish to transfer their activity abroad may increase. Moreover, perspectives for companies that will remain in the United Kingdom may deteriorate.

Since the beginning of February, the GBP/USD went down from approximately 1.27 to approximately 1.245. However, this result was partially caused by the strengthening dollar. The dollar’s index (DXY) went above the 100 level and remained there, mainly due to the fact that the EUR/USD was pushed near the level of 1.07.

Positive condition of the zloty

Relatively positive data from the Polish economy, as well as a positive sentiment towards the emerging market currencies, caused the zloty to remain in a positive condition for another consecutive day. The EUR/PLN went below the level of 4.28 for the first time since October 12th. However, this pair quoted a slight rebound (0.01 PLN). The CHF/PLN went near 4 PLN, which was its lowest level in approximately three months.

Despite favorable economic sentiment, the zloty’s appreciation potential seems limited. The euro zone’s monetary policy remains relatively mild. Moreover, the MPC announced that there will be no rate hikes in Poland until 2018 and the Federal Reserve will most likely perform three rate hikes this year. The latter will most likely cause the USD/PLN to increase over the forthcoming months. Moreover, the zloty’s appreciation against the euro may be limited as well.

Tomorrow’s events

At 8.00 AM, Destatis will publish the data regarding the German industrial production for December 2016. This index’s level has been relatively volatile in Month over Month interpretation. Nevertheless, it has quoted two consecutive growths recently (0.5% MoM and 0.4% MoM in October and in November, respectively). This was the first time since mid-2015 that this happened. Today’s data regarding new orders in the German industry suggests that this tendency is likely to be sustained (positive 5.2% MoM and positive 8.1% YoY). Moreover, the industrial production may appear to be better than the consensus (0.3% MoM).

If tomorrow’s data is consistent with expectations (or higher), this would be the first time since the break of 2014 and 2015 that the industrial production has been increasing for the third consecutive month (in MoM interpretation). However, this data may have a relatively limited impact on the euro, due to the European Central Bank’s mild monetary policy.

At 2.30 PM, the Bureau of Economic Analysis will present the American payment balance for December. In November, this index’s deficit was at the level of 45.2 million dollars, which was its highest since February 2016. This result was mainly caused by lower export (negative 0.4 million dollars) and higher import (positive 2.4 million dollars). A decrease in export of planes was approximately 1.3 billion dollars lower and export of soy beans went down by 313 million dollars.

The market consensus regarding the trade balance deficit is currently at the level of 45 billion dollars. This data can increase fluctuations on the dollar, taking into consideration the FOMC minutes, the data from the American labor market and President Donald Trump’s statements. Moreover, a worse reading is more likely to have a negative impact on the dollar in the short-term.