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Afternoon analysis 10.02.2017

10 Feb 2017 15:18|Bartosz Grejner

Consistency between the OPEC countries production and the concluded agreement reached 90%. Positive data from the British economy was not able to support the pound. The EUR/PLN went below 4.2950.

Limited increase in oil prices

The International Energy Agency (IEA) published its monthly report regarding the oil market. The OPEC countries achieved 90% consistency regarding the production limits in January. The IEA estimated that a total OPEC production will be at the level of 32.1 million barrels per day. However, some of the OPEC countries decreased their production to a lesser degree than it has been established (Saudi Arabia, for example).

However, the IEA expects that the production index of the non-OPEC countries will increase. Estimates show that a total production from Brazil, Canada and the USA will increase by 750k barrels per day in 2017. The recent increase in the American drills activity allows the IEA to assume that the American production alone will increase by 520k barrels per day.

The oil demand has been revised for the third consecutive month (1.6 million barrels per day). This index’s growth can be explained by atmospheric circumstances in Europe in the fourth quarter (lower temperatures). The report estimates that the demand will increase by 1.4 million barrels per day in 2017 (100k more than in the previous projection). Moreover, taking into consideration that the above mentioned consistency level may be sustained, the IEA estimates that the oil surplus will be at the level of 600k.

However, we need to keep in mind that the OECD oil supplies decreased by approximately 800k in the fourth quarter. Nevertheless, they are still at a very high level. According to the IEA estimates, this index will remain 286 million barrels above its five-year average at the end of June. Due to this element, the chances for the oil prices growth above 60 dollar per barres seems to be limited.

However, due to the OPEC agreement, the oil prices shouldn’t go below the level of 50 dollars per barrel. Lower dynamics of the oil prices growth will translate to lower inflation. This may cause a lower pressure on the central banks to raise interest rates. On February 17th, OPEC will present its report regarding the agreement. Therefore, we can expect volatility in the oil prices.

British industrial production

The British Office for National Statistics informed that the industrial production for December increased by 4.3% YoY, against the expected 3.2% growth. The industrial processing increased by 4% YoY, against the expected 1.8% growth. As a result, this component contributed to approximately 66% of the general increase in the industrial production in December. Moreover, pharmaceutical sector quoted a 19.1% YoY growth.

The British trade balance deficit was 600 million pounds lower than expected (10.9 billion pounds). Deficit in trading with the countries from outside of the EU was at its lowest level in more than one year (2.11 billion pounds). However, this was not sufficient to support the pound. The GBP/USD was pushed from 1.25 to approximately 1.244. The market has been dominated by the Brexit anxieties, which regard the potential lack of a positive economic agreement between the EU and the UK.

The situation is even worse due to the dollar’s strong position. The American currency increased due to the comments from the new American administration, regarding the tax system. The EUR/USD was near its one-month minimum. At 4.00 PM, the University of Michigan will publish its consumer sentiment index. The market consensus is 0.7 points lower than its previous result. A negative result of this index could stop, or at least decrease, the dollar’s appreciation.

Positive condition of the zloty

The zloty’s condition improved. If the EUR/PLN ends this week below 4.30, this would be a confirmation of the Polish currency’s positive condition. However, the future appreciation potential seems limited, due to the dollar’s appreciation. Next week will be significant for the zloty, because of much data from abroad, as well as from Poland (inflation, the industrial production and the retail sales).

Next week’s events

At 2.00 PM on Monday, the Polish Central Statistical Office (GUS) will present the data regarding the CPI for January. In December, this index was at the level of positive 0.8% YoY. This growth was mainly caused by an increase in the raw material prices (mainly oil). However, the impact of this phenomenon will gradually decrease. This is because the oil prices growth has clearly decreased recently.

The Monetary Policy Council thinks the same. The MPC chairman, Adam Glapiński, suggested that the Council will not decide to increase interest rates, if inflation growth is caused only by single external factors (further increase in the raw material prices, for example). This relatively dovish message may limit the zloty’s potential growth.

Also at 2.00 PM on Monday, the National Bank of Poland will publish the data regarding the current account for January. In both September and October, the deficit of the current account was at the level of approximately one billion euro. This was caused by a low inflow of the EU funds to Poland, which translated to worse GDP growth for 2016. However, the current account deficit has been decreasing gradually (531 million euro and 437 million euro in November and December, respectively). If this tendency is sustained, the zloty’s appreciation would be supported.

On Tuesday, we will knot the German (second reading) and the British CPI readings for January. The market will mostly focus on the latter. The pound has recently been very volatile due to Brexit. Therefore, macroeconomic data are very significant for the British currency.

Moreover, Eurostat will present the German industrial production data for December. This index was at the level of positive 3.2% YoY, which was a large surprise, because this was its best result in more than five years. The current market consensus is at the level of negative 1.7% YoY. However, even if the data is slightly better, the euro’s appreciation is limited by the European Central Bank’s policy.

On Wednesday, we will know the American CPI. However, it is the PCE inflation, which is more significant for the Federal Reserve. Nevertheless, CPI may give hints regarding the general price level. Since the beginning of mid-2016, we have been observing a rapid increase in prices (from 0.8% in June to 2.1% in December), but the baseline index has been more stable. Therefore, we can expect that the dollar may be volatile due to this reading, as well as to the retail sales data for January (at 2.30 PM).

On Friday, GUS will publish the data regarding the industrial production, as well as the retail sale. After an unexpected decline of the industrial production index in October (negative 1.3% YoY), the two following brought its growth (3.3% and 3.2%, respectively). However, these results were still a far cry from the one from August (positive 7.5%). The situation regarding the retail sales index is slightly different. In November, this index was at the level of 6.6% (this was its highest result in two-and-a-half years) and 6.4% in December. The 500+ program might have had the largest impact on the retail sales growth. Therefore, this upward trend will most likely be sustained in January. If the data from Friday is positive, this may strengthen the zloty.

10 Feb 2017 15:18|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:

10 Feb 2017 12:16

Daily analysis 10.02.2017

9 Feb 2017 16:19

Afternoon analysis 09.02.2017

9 Feb 2017 13:16

Daily analysis 09.02.2017

8 Feb 2017 16:18

Afternoon analysis 08.02.2017

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