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Afternoon analysis 12.05.2017

12 May 2017 15:28|Bartosz Grejner

The dollar has been overvalued by the American consumer inflation, which has reached its lowest level since December. The zloty has worked-off a portion of its losses from yesterday. Weak data from the USA has brought the USD/PLN to its level for the beginning of this week.

Weak data from the USA

According to the Bureau of Labor Statistics (BLS), the CPI for April was at the level of 2.2% YOY, which was by 0.1 percentage points lower than the consensus. Moreover, this was this index’s lowest result since December 2016. Nevertheless, we should keep in mind that the significance of this data for the Federal Reserve is fairly limited. This is because the Fed uses the PCE in its forecasts. However, a poor reading of the CPI may suggest that inflation pressure within the American economy has decreased.

Retail sales data for April, provided by the Census Bureau, was also worse than expected (0.4% MoM vs 0.6% MoM). A positive aspect of this report was a revision of the previous reading (from negative 0.2% to positive 0.1%). Moreover, retail sales increased 4.5% YOY.

Investors reacted negatively to the above mentioned data. The profitability of the US treasury bonds decreased, which caused the EUR/USD to go back above the 1.09 level. As a result, the dollar’s index has gone down from 99.5 points to 99.2 points. At 16.00, the University of Michigan will publish the US consumer sentiment. Taking the current conditions into consideration, this index would need to exceed the consensus significantly (97 points) in order to strengthen the dollar, or at least stop its current depreciation trend.

Zloty is becoming slightly stronger

Yesterday, the zloty worked-off its recent growths slightly. However, the Polish currency has been strengthening since the morning. This goes to show that the sentiment towards the zloty remains positive, in spite of minor changes in quotations of the PLN. Shortly after the negative data from the USA, the USD/PLN had gone down to the 3.86 level, which is its lowest since Monday.

The data regarding the Polish trade for the first quarter, which was provided by the Polish Central Statistical Office (GUS), was fairly mixed. Export increased 8.9% YOY and import increased 12% YOY. This may be negative for the economic growth in the first quarter. However, trade exchange increased approximately 18 billion PLN.

Next week’s events

Next week will be full of macroeconomic data from Poland, which may significantly impact the zloty’s quotations. On Monday, the National Bank of Poland will publish the CPI data for April and retail sales index for March. The CPI may give us a picture of the upward trend regarding underlying inflation (increasing raw material prices, for example).

On February, the CPI was at the level of positive 0.3% and increased up to 0.6% in March. The current account balance will most likely provide investors with information regarding inflow of the EU funds in March. On Tuesday, the Polish Central Statistical office (GUS) will publish the data regarding the GDP growth in the first quarter, which was positive in regard of both industrial production and retail sales. This should limit the chances for a poor result.

On Wednesday, the Monetary Policy Council will make its decision regarding interest rates in Poland. However, the press conference after the MPC meeting will most likely be more important for the zloty. If Monday’s inflation data shows a further growth, the MPC may change its tone to less dovish. This would increase the likelihood of sustaining the positive trend for the zloty.

On Thursday, we will know the data regarding both salaries and employment in the company sector. Both of these indexes have been increasing over the past few months. Combined with decreasing unemployment rate, this shows that condition of the Polish labor market has been improving. If this trend is confirmed by the data, this would be positive for the zloty.

On Friday, the GUS will publish the data regarding retail sales, industrial production and PPI. These readings are significant for the GDP growth in the second quarter. The market will most likely focus the most on retail sales and industrial production. In March, these indexes reached their six-year and five-year maximum, respectively.

We need to keep in mind that retail sales, as well as industrial production are fairly volatile. Therefore, it seems likely that their growth would slow down in April. If the readings are significantly inconsistent with the consensus, this will reduce expectations regarding the GDP growth for the second quarter and overvalue the zloty.

12 May 2017 15:28|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:

12 May 2017 12:23

Daily analysis 12.05.2017

11 May 2017 15:31

Afternoon analysis 11.05.2017

11 May 2017 12:32

Daily analysis 11.05.2017

10 May 2017 15:23

Afternoon analysis 10.05.2017

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