Afternoon analysis 10.01.2017

The data from the Chinese economy cause the yuan to wear-off. The dollar is supported by the small business optimism, which is at its highest level in twelve years. The zloty’s condition is better, but its appreciation potential will be limited until the end of this week.

Mixed data from China

Today, the National Bureau of Statistics of China published the data regarding the producer inflation for December. This reading was very positive (5.5% YoY vs 4.6% YoY) and the best in approximately five years. Moreover, between March 2012 and August 2016, this index was at a negative level. Since September, it has been gradually increasing.

Previous months brought an upper trend in the consumer inflation (CPI) as well. Since its last decrease in August (1.3% YoY), this index has been increasing and reached the level of 2.3% in November. The market consensus for December was at the same level. However, the final result was at the level of 2.1% YoY and 0.2% MoM (vs expected 0.3% MoM).

After its last week’s record level against the dollar, the yuan wore-off. This was most likely caused by the above mentioned CPI data.

Dollar works-off its losses

At 12.00 AM, the National Federation of Independent Business (NFIB) published the small business optimism index, which reached its highest level since 2004 (105.8 points). One of this index’s components is the subindex of companies, which expect an improvement of the American economy. This subindex reached the level of approximately 50%.

The dollar strengthened during the second part of the day. The EUR/USD was pushed to the level of approximately 1.0560. The pound was in a better condition as well and the GBP/USD neared 1.22. Moreover, the GBP/JPY increased from 140.1 to 141.5. The stronger dollar combined with the yen’s wear-off against the pound, caused the USD/JPY to return above 116.

Zloty is stronger

The zloty strengthened against the forint and the PLN/HUF reached the level of 70.7 this afternoon. The zloty was stronger against the euro as well. However, the fluctuation range was relatively limited. Therefore, despite reaching the level of 4.3650, the EUR/PLN quickly returned near 4.37. The stronger dollar most likely caused the USD/PLN to remain unchanged this afternoon (4.13).

Tomorrow may bring a larger volatility on the zloty, due to the MPC meeting. The press conference may contain some hawkish statements regarding sooner monetary tightening (in 2017). Moreover, Poland’s rating will be reviewed by the rating agencies this Friday. There is a large risk that the decision from Moody’s will be negative. Therefore, the zloty’s appreciation potential seems relatively limited.

Tomorrow’s events

At 10.30 AM, the Office for National Statistics (ONS) will present significant data from the British economy for November. This data will include industrial production, which unexpectedly went down in October (negative 1.1% YoY vs positive 0.5% YoY). The market expects that the reading for November will be at the level of positive 0.8%.

Industrial processing was also disappointing in October (negative 0.4%). This time, the market consensus is at the level of positive 0.5% YoY, which is the same as in August 2016. This data is significant, because industrial processing is approximately 80% of the British industrial production. Therefore, it determines its eventual value (or its volatility).

Building production was positive in October (positive 0.7% vs negative 0.1%). However, we need to emphasize that this index has been gradually decreasing since the second quarter of 2014 and in March 2016 it reached the value of negative 1.2%. Nevertheless, the market estimates a 2.0% YoY growth in November.

At approximately 12.00 AM, we will know the decision from the Monetary Policy Council regarding Polish interest rates. The MPC chairman said at his previous press conference that rate hikes should be expected no sooner than at the beginning of 2018. Therefore, we don’t expect interest rates level to change. However, due to the recent positive economic data from the Polish Central Statistical Office, we may expect some signals regarding a possible monetary tightening in 2017.

This kind of statement would support the zloty, especially regarding anticipated appreciation of the dollar.