Afternoon analysis 07.11.2016

Sentix Investor Confidence Index above expectations for the euro zone, although with limited impact on the euro due to presidential elections in the US. Retail sales in the euro zone still slightly below zero on a monthly basis. Polish currency lower despite better global sentiment and good Eurostat data.

The Sentix Index rose for fourth week straight

The Sentix Investor Confidence Index rose to 13.1 in November (vs. 9.0 market consensus), in comparison to 8.5 in October. That’s the highest value of the index since December 2015. Most noticeably, current conditions rose by 6 points – from 6.3 in October to 12.3 in November. The expectations subindex rose slightly less: from 10.6 to 14.0

The aforementioned index is the next after Ifo and GfK which points to a better assessment of current conditions and future expectations of the euro zone. Except the highest level seen this year, the dynamism of the increase is especially positive. Better than expected investors sentiment could positively impact growth rate in manufacturing and services, and also cause a slightly higher inflation. This could encourage ECB to consider reducing the scope of QE, which in turn could support the euro.

Retail sales in the euro zone decreases

Eurostat published today a report stating that retail sales in the euro zone declined for the second month straight by 0.2% MoM, which turned out to be just above market consensus of -0.3%. It constituted a 1.1% increase on a yearly basis; August’s increase was revised upward from 0.6% to 1.2%. The gradual decline of retail sales has been seen since January 2015, when it was 3.2%.

Retail trade of food, drinks and tobacco increase in September by 0.6%. The 1.0% drop in sales of non-food products contributed the most to the overall fall on retail sales on a monthly basis. Automotive fuel in specialised store also decreased by 0.3%. The biggest decrease was seen in Portugal and Slovenia, 2.1% and 1,7% respectively. Euro lost some ground today in relation to the dollar, mainly because of FBI stating that there are no grounds to prosecute Hilary Clinton for her using a private server email. The EUR/USD pair was once again below 1.11.

Zloty slightly weaker

The Polish currency weakened somewhat in the second half of the day. It lost about 1% to the dollar but for the most part, a globally stronger dollar was responsible. The American currency cost the most since the 1st of November, e.g. 3.92 zl. The Swiss Franc remained in the upper bound of recent fluctuations – it was 2 gr more expensive than on Friday and cost 4.02 zl.

Eurostat also showed relatively good data regarding retail sales in the Polish economy. It rose 0.7% MoM and 8.6% YoY in September. In both cases Poland was in the top three countries in terms of growth rate. However, Polish Zloty didn’t take advantage of the globally better sentiment today or good retails sales data. Most probably the investors fear the outcome of US presidential elections and/or a potential December hike by the Fed (current probability of that happening is at 76.3%, estimated from fed funds futures.

Tomorrow’s preview

An hour before the opening of European markets, Destatis will publish at 8.00 data regarding industrial production and trade balance in September. The August’s 2.5% MoM increase in industrial production exceeded expectations of 0.8% and was the biggest monthly gain in 5 years. In the last few years, after a substantial increase there were declines in industrial production in months that followed. The median of market expectations suggests a 0.5% decline in September.

On the other hand, the market expects Germany’s trade balance to increase to €22.4 bn in September, which would be the highest level since April. The August’s reading of €22.2 bn was €2.2 bn above what the market expected, mainly due to a 5.4% MoM increase in exports, which was the biggest monthly gain in two years. The trade balance of Germany is currently close to historical records. Data better than expected could slightly support the euro and could also be positive for the zloty and the Polish economy, since Germany is one of its biggest business partners.

At 10.30 The Office for National Statistics in Great Britain will present the September data regarding industrial and manufacturing production. The Pound is especially sensitive to data concerning the British economy. The market consensus predicts a 0.1% YoY decline in manufacturing production – that would be the first drop since March. However, it is expected that the industrial production will rise by 0.8% YoY (which would be a slightly larger gain that August’s 0.7%), despite remaining unchanged on a monthly basis.