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Afternoon analysis 06.12.2016

6 Dec 2016 16:37|Bartosz Grejner

The euro zone’s economy increased by 1.7% YoY in the third quarter, which was better than expected. On the other hand, the German industrial orders increased by 4.9% MoM in October. The Polish currency is finally gaining value.

Positive data from Europe

Today’s Eurostat report shows that the euro zone’s GDP growth for the third quarter (1.7% YoY) was better than the market consensus, as well as its initial reading (1.6%). The euro zone’s economy increased 0.3% in the Quarter over Quarter interpretation, which was consistent with its initial reading. However, this growth was lower than the growth in the entire European Union (0.4% QoQ). The Year over Year growth was also higher (1.9%).

What’s interesting is that this report seems to confirm that none of the economies had a negative growth pace in the third quarter. Lithuania quoted the lowest growth (0.1% QoQ). Poland’s economic growth was at the level of 0.2% QoQ. The same growth in the Quarter over Quarter interpretation was quoted by Belgium Czech Republic, Estonia, France, Germany and Latvia. These economies quoted the lowest QoQ growth in the third quarter. On the other hand, the GDP increased the fastest in Croatia (1.7% QoQ), Greece and Portugal (0.8% QoQ in both of these countries).

Destatis published the data regarding industrial orders in Germany. This index increased 4.9% MoM in October, which was its highest MoM growth in more than two years. This growth was a positive information for investors, because the market consensus was at the level of 0.6%. Moreover, this index declined by 0.3% in September. Orders within Germany increased by 6.3% and orders from abroad increased by 3.9%. However, an increase in orders for consumer goods was relatively low (0.5%). On the other hand, orders for investment goods increased by 7.2%.

Bundesbank expects that this data may suggest acceleration of the German GDP growth in the fourth quarter. Tomorrow, we will know the data regarding industrial production growth for October. This may confirm positive readings from today. This information would not only be positive for Germany, but also for Poland, which is Germany’s largest trading partner.

Positive condition of the German economy may improve Poland’s trade balance, which would be positive for the GDP growth. However, today’s data had a limited impact on the euro. The market still anticipates the decision from the European Central Bank regarding interest rates and the QE program, which will be revealed on Thursday. The recent Bloomberg’s survey showed that approximately 70% of investors expect that the QE program will be extended beyond March 2017.

Zloty works-off its losses

The zloty started gaining value this afternoon. The PLN/HUF went above the level of 70. This suggests that today’s growth was determined by the zloty’s internal strength, instead of a better global sentiment. The euro went down by 0.03 PLN and currently is at the level of 4.47. The zloty strengthened against the dollar as well. The USD/PLN is at the level of 4.17, which is approximately 0.10 PLN less than yesterday.

The franc became cheaper as well (4.13 PLN). However, we need to keep in mind that the zloty remains relatively weak. Moreover, two forthcoming day will include events than may significantly determine evaluation of the Polish currency. Tomorrow, we will know the decision from the MPC, as well as the Council’s announcement, which may suggest interest rates level in the forthcoming quarters. Additionally, Thursday’s decision from the ECB may impact the zloty’s evaluation by the euro, as well as by the sentiment to the emerging market currencies. The market expects that the QE program will be extended, which most likely will wear-off the euro.

Tomorrow’s events

At 8.00 AM, Destatis will publish the data regarding the German industrial production for October. This index has been relatively volatile in the Month over Month interpretation. Industrial production went down 1.8% MoM in September. This was its largest decline in more than two years. On the other hand a 3% MoM growth from August was its highest growth in more than five years. The market expects this index to grow 0.8% in October.

Recently, the market consensus has been inconsistent with the final results. Therefore, we expect that industrial production will be inconsistent with expectations as well. Even though this data is significant for the German economy, as well as for the euro zone, the euro’s reaction to its result may appear relatively limited. This is because of the decision from the European Central Bank, which will be announced on Thursday. This decision concerns interest rates and the QE program. Moreover, investors also anticipate Mario Draghi’s press conference, which will be held after the meeting.

At 10.30 AM, the Office for National Statistic will present the data regarding industrial production in the United Kingdom for October. This index appeared to be worse than the consensus in the past two months in the Month over Month, as well as in the Year over Year interpretation. It was at the level of negative 0.4% MoM in August and in September, against the expected positive 0.1%. Currently, the market expects an increase at the level of 0.2% MoM and 0.5% YoY. We have been observing a similar trend for industrial processing in Year over Year interpretation. However, this index quoted a 0.2% MoM and 0.6% MoM growth in August and in September, respectively. The market consensus assumes a 0.2% MoM growth and a 0.8% YoY growth for October. Over the past few weeks, the pound took a rebound from its thirty-year minimum against the dollar. The British currency is especially susceptible to economic data. The GBP/USD is still missing approximately 15% to its level from before the Brexit referendum. Positive data regarding industrial production would confirm the resistance of the British currency and may support the pound’s value.

At approximately 12.00 AM, the Polish Monetary Policy Council will probably announce its decision regarding interest rates. The market doesn’t expect any changes to be made, because the Council’s chairman said that he doesn’t foresee rate hikes before the beginning of 2018. Taking into consideration that inflation level is still quite distant from the Council’s inflation goal, monetary easing seems to be out of the question as well. However, the recent negative data from the Polish Central Statistical Office regarding the GDP growth in the third quarter, as well as constantly weaker construction production (negative 20% in October), may cause the Council to suggest potential decrease in interest rates, in order to stimulate the economy in the future.

6 Dec 2016 16:37|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:

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Daily analysis 06.12.2016

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Afternoon analysis 05.12.2016

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Daily analysis 05.12.2016

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