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Afternoon analysis 06.03.2017

6 Mar 2017 15:24|Bartosz Grejner

Sentix (consumer sentiment index) for the euro zone increased to its ten-year record. However, its impact on the euro was limited. The zloty is determined by the global sentiment.

Improving sentiment

After a 0.8 points decline in January, the sentix index increased 3.3 points in March (20.7 points). Investors appeared to be particularly positive towards the euro zone’s current economic situation (positive 3.3 points). The sentix report not only indicated an improving sentiment in the developed market, but in the entire globe.

Investors evaluated the current sentiment in Latin America as the best since September 2014. The Asian countries (excluding Japan) were estimated positively as well. The survey indicated that the global business cycle is currently free of any dangers.

However, this data had a limited impact on the euro, which remains determined by political events (French presidential elections) rather than macroeconomic data from the euro zone. The EUR/USD was pushed to the level of approximately 1.057, only to return to the 1.06 level shortly before 15.00.

On one hand, the euro is weakened by both the political uncertainty and the mild policy from the ECB. On the other, the dollar’s appreciation has not been as strong as expected, due to the lack of more detailed plans of tax changes in the USA. Moreover, the USD/JPY has been remaining within the range of 112-115. The dollar’s index is currently a the level of 101.6 points.

Zloty is weaker

The zloty has mainly been determined by external factors. Today, the zloty was in a slightly worse condition. The EUR/PLN increased from 4.30 to 4.31 and the GBP/PLN was returning to the 5.00 level. The zloty may remain under the influence of external data, taking into consideration that there will be no significant local readings this week. The only exception is the Monetary policy Council on Wednesday. However, due to the fact that no significant changes are expected, its impact on the zloty should be limited.

This week’s main events

Tomorrow, Eurostat will publish the data regarding the euro zone’s GDP growth for the fourth quarter. According to the initial data from mid-February, this index increased 1.7% YoY and 0.4% QoQ, while the expectations were by 0.1 percentage points higher in both cases. Taking into consideration that the GDP growth has been within the narrow range of 1.5%-1.8% YoY over the past five quarters, this reading shouldn’t be surprising as well. Hence, it’s impact on the euro will be limited.

Also tomorrow at 14.30, the Bureau of Economic Analyses (BEA) will present the American trade balance for January. Even though the balance deficit for December decreased from 45.7 billion to 44.3 billion dollars, it still remains near its ten-month minimum (negative 46.96 billion dollars). In the last quarter of 2016, the average product deficit increased by 2.6 billion dollars – import’s average growth was at the level of 3 billion dollars, while export’s average growth was at the level of 0.4 billion dollars. Currently, the market expects the deficit to increase up to 48 billion dollars. This may cause additional pressure on the dollar.

On Wednesday, we will knot the MPC’s decision regarding interest rates. No changes are expected by both the market and the Council alone. At 16.00, the MPC press conference will be held. Due to the lack of unexpected macroeconomic events that would change the Council’s attitude, the MPC message will most likely have a limited impact on the zloty. Despite faster inflation growth, the Council claimed that this was a result of increasing prices of the raw materials. Moreover, baseline inflation remains stable.

On Thursday, the European Central Bank will make its decision regarding interest rates, as well as the QE program. The current ECB monetary policy is very mild. According to the latest ECB announcement, the current QE program will not change until December 2017 or beyond, if inflation is not consistent with inflation goal.

Even though the CPI increased recently, this index has been at a similar level in more than two years. Therefore, we shouldn’t expect any changes regarding the ECB monetary policy. Even though the euro may be relatively volatile, the changes in its eventual evaluation should be minor.

On Friday, the British Office for National Statistics (ONS) will publish the data regarding the industrial production for January. This index’s result appeared to be a positive surprise in December (4.3$ YoY vs 3.2% YoY). Moreover, the industrial processing quoted a 4% growth, against the expected 1.8%.

The market consensus is currently at the level of 3.3% (the industrial production) and 3% (the industrial processing). However, the production data is relatively volatile. Therefore, the final result may be inconsistent with the consensus. This may increase fluctuations on the pound.

Also on Friday at 14.30, the Bureau of Labor Statistics (BLS) will publish a report regarding the American labor market for February. This report may have a significant impact on the dollar. We will know the data regarding jobless claims and salaries, among others.

The average hourly wage has been disappointing over the past three months (negative 0.1% MoM, positive 0.2% MoM and positive 0.1% MoM in November, December and January, respectively). The market consensus currently is at the level of positive 0.3%. The dollar would gain value, if the reading is at this level of higher. Another interesting index is the employment in non-agricultural sector (227k increase in January). The past eight months readings are within the range of 142k-292k. If the data for February is within this range, this will most likely be neutral for the dollar.

6 Mar 2017 15:24|Bartosz Grejner

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.

See also:

6 Mar 2017 12:30

Daily analysis 06.03.2017

3 Mar 2017 14:55

Afternoon analysis 03.03.2017

3 Mar 2017 12:22

Daily analysis 03.03.2017

2 Mar 2017 15:28

Afternoon analysis 02.03.2017

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