Afternoon analysis 12.07.2017

The industrial production in the common currency zone is surprisingly positive, giving support to the euro for the coming days. Quiet quotations of the Polish currency - data on commodity turnover and core inflation in accordance with expectations.

Activity in the industry sector gaining pace

Having reached the highest rate for 14 months, the euro's quotations rate against the dollar slightly weakened. The EUR/USD fell from close to 1.15 to around 1.145 before 3.00 p.m. At present, there are not many arguments in favour of the dollar strengthening, hence the fall of the EUR/USD is probably a rebound of its recent rapid growth. There was data supporting the common currency.

Today, the European Bureau of Statistics (Eurostat) presented a report on May's industrial production. It increased in the eurozone by 4% compared to May last year. That's 0.4 percentage points above market expectations, but also its the highest year-to-year increase for nearly six years. The industrial production also increased at the same pace throughout the European Union.

Three countries noted a two-figure growth, i.e. in Romania (+14.6%), Estonia (+12.6%) and the Czech Republic (+10.7%), while activity in the industrial section fell only in Great Britain (about 0.7%) and Malta (about 0.7%). May's better-than-expected growth was primarily attributable to an increase in durable consumer goods - in the eurozone by 7.5% YOY and EU-wide by 6.8% YOY.

In the last few months, "hard" data on industrial output (from 0.2% to 2.2% YOY) diverged from "soft" indicator data (e.g. PMI), which was based on industry surveyors' questionnaires. A May reading of 4%, should help keep the euro's recent gains. At least until Friday, when we will get consumer inflation data in the US. If it turns out to be higher than expected (above 1.7%) the dollar could indeed gain in value, which would negatively impact the valuation of the single currency.

Slight modifications on the zloty

Although today we observed a slightly weaker zloty in relation to the Swiss franc and the pound, there are no arguments in the market for a weaker Polish currency. The franc predominantly relaxed yesterday's fall in value - the Swiss currency was worth the least in relation to the zloty since early June (less than 3.83 zloty). The British currency, on the other hand, responded positively to the labour market's report published today. The unemployment rate and the employment rate of people aged between 16-64 were the lowest in 1975 and 1971 respectively.

Today, the National Bank of Poland (NBP) released June's core inflation data, excluding relatively volatile energy and food prices. As expected, the base rate was 0.8% on an annualised basis. In addition, the NBP presented data on trade in foreign trade in the first five months of 2017. Exports increased by 6.7% in May compared to the same period last year. Import is growing faster - in the same period, it increased by 9.8%. Looking at its structure, we see that imports from developed countries (including the euro area) have declined in favour of emerging markets of Central and Eastern Europe.

Ultimately, the data was not a surprise to the market, keeping the trend observed in the previous months, hence it was relatively neutral for the zloty. As in the case of the euro, the most important data for the Polish currency may be Friday's consumer inflation report (CPI) in the US. A better-than-expected publication would weaken the entire zloty basket, not only in relation to the dollar.

Tomorrow’s preview

Tomorrow morning we will know June's final inflation data of the eurozone's countries such as Germany, France or Spain. This is yet another consumer's inflation reading in these countries, so the probability of a significant deviation from the previous values ​​is limited. However, if this data differed from the publications from two weeks ago, it would suggest that the inflation in the eurozone may also be slightly different from the preliminary reading.

This, in turn, could lead investors to price in this possibility, especially since the data for the eurozone will not be published until next week. Taking into account the recent significant increases in the value of the euro, in relation to the dollar or the Swiss franc, the potential changes in inflation levels of these countries could cause a relatively large euro reaction.

At 2.30 p.m. a series of data from the US economy will be published. Although the data is rather second-tier when it comes to its influence on the dollar, taking into account its recent depreciation, better-than-expected readings could become an argument for strengthening of the dollar. The Department of Labor will submit a weekly report of initial jobless claims and insured unemployment in the past week.

The market consensus points to initial jobless claims at 245,000, and insured unemployment at 1,950 million, that is appropriately by 3,000 and 6,000 thousand less than last week. The Bureau of Labor Statistics (BLS) will show June producers' inflation data (PPI), which, unlike consumers’ inflation, has even increased in the last few months. Currently, its level is expected to fall from 2.4% to 1.9%, with its core index from 2.1% to 2.0% (on a yearly basis).