Afternoon analysis 12.08.2016

Weaker US data pushed the dollar significantly lower. The Polish inflation was in line with expectations, but the central bank data was not as good as the morning’s GUS report.

The US retail sales look weak. The monthly basis expectations remain unchanged while expectations were around +0.4%. Excluding more volatile components such as energy and cars, the result was at negative 0.1% m/m.

These readings significantly reduced the whole retail sales path. A month ago we noted that its year on year value rose to around 3%. This meant that consumption was really building. The Federal reserve also noted in July’s statement that “household spending has been growing strong.”

After July, the y/y retail sales growth dropped from 3.0% to 2.3% and excluding cars only puts it at 2.2%. There is an instant question whether Q3 can really be seen as a GDP rebound as Americans are not as optimistic as they previously were to push the consumption higher?

The fact regarding lower producer price index can be a bit surprising. Excluding energy and food, it grew only 0.7% y/y while the consensus was at the 1.2% level. It also may delay the path of CPI/PCE path to the central bank goal.

Finally, besides the most recent GDP reading, there is more data which could suggest that the Federal Reserve may refrain from any suggestions on the monetary tightening during September’s meeting. Today’s data also reduces the odds that Janet Yellen may be more hawkish during her Jackson Hole speech at the end of August. As a result, there is a higher probability that the dollar may remain under pressure for the following weeks.

Fairly stable zloty

In the afternoon, the GUS published its final inflation reading for July and data on trade. The CPI was in line with expectations and dropped to 0.9% y/y. However, the NBP data on foreign trade was rather disappointing when taking into account the GUS trade data that was revealed in the morning (detail in the previous analysis). The surplus was around 400 million euro, which is a good result overall, but according to the GUS reading, we were expecting the final data to be around 1 billion euro.

Overall, the data is not a game changer for the zloty. This should not be surprising for the MPC and the rates are not expected to be lower in the following months even if some more dovish central bank officials start to suggest such a possibility.