Afternoon analysis 11.01.2017

The British industrial production appeared to be better than expected. However, this was not enough to support the pound, due to negative data regarding the foreign trade balance. The zloty remains calm, despite a slight loss against the forint.

Mixed data from British economy

Today, the British Office for National Statistics informed that the industrial production increased to the level of 2% YoY. This result was significantly better than expected (0.8%), as well as the best in four months. The Month over Month growth was also better than expected (2.1% MoM).

Moreover, the industrial processing increased 1.2% YoY and 1.3% MoM, which were both better than expected. These results were caused by an increase in pharmaceutical production (positive 11.4% MoM). However, oil production increased 10.3%.

The foreign trade data for November was negative. The goods trade deficit was at the level of 12.2 billion pounds, against the expected 11.2 billion pounds. Moreover, the services balance surplus went down to 8 billion pounds. The final result of the foreign trade balance was at the level of negative 4.2 billion pounds, against negative 1.5 billion pounds the month before.

Positive data from the British industry was not enough to support the pound. As a result of the above readings, the British currency wore-off and the GBP/USD was pushed to the 1.21 level. This decline was also caused by the stronger dollar, which caused the EUR/USD to go down to the 1.05 level in the afternoon. The dollar’s index (DXY) reached its highest level in one week. The market anticipated Donald Trump’s press conference (5.00 PM CET), which may bring references to the economic policy, including taxes and infrastructural expenses.

This afternoon, the Bank of England chairman, Mark Carney, testified in front of the British Treasury Committee. He claimed that the Brexit-related risk of financial instability is larger in mainland Europe than in the United Kingdom. This doesn’t mean that the British economy is free of this risk. Carney also emphasized that Brexit may strengthen local risks.

Zloty is calm

The Polish currency remains stable. The EUR/PLN is near 4.37. However, global strength of the dollar cause the USD/PLN to increase to 4.16. The zloty wore-off slightly against the forint as well. However, the Polish currency remains near its recent maximum on the PLN/HUF.

The Monetary Policy Council left interest rates unchanged at its recent meeting. The Council’s announcement states that the economic growth decreased in the fourth quarter. Moreover, the MPC claimed that the upper trend on inflation will continue. However, this index alone will remain moderate. More rapid inflation pace will be caused by higher prices of resources, as well as anticipated higher GDP growth in 2017, which would be caused by increasing investments and consumption.

Tomorrow’s events

At 11.00 AM, Eurostat will publish the industrial production data from the euro zone for November. This index has been decreasing after its growth in August (2.2% YoY) to reach the level of 0.6% YoY in October. The market expects that the industrial production increased by 1.6% YoY in November. Even though a positive result may support the euro, the sentiment related to the ECB policy limits this currency’s appreciation potential.

At 1.30 PM, the European Central Bank will publish the minutes from its previous meeting in December. The euro’s value would be increased by potential suggestions of the QE program reduction. However, it’s more likely that tomorrow’s publication will be free of such unambiguous statements and its impact on the euro will be neutral.

At 2.30 PM, the American Labor Department will present last week’s jobless claims. This index’s previous result was at the level of 235k, which was significantly better than the consensus (261k). Currently, the market consensus us at the level of 255k. This will most likely be the ninety-seventh consecutive week of jobless claims below the 300k level.