Afternoon analysis 13.02.2017

Important forecasts from the European Commission for the euro zone for the years 2017 and 2018 had a limited impact on the euro. Economic data from Poland has stopped the zloty’s overvaluation.

Forecasts for the euro zone

The European Commission increased the estimated economic growth for the euro zone to 1.6% and 1.8% for 2017 and 2018, respectively. This revision was caused by positive economic dynamics in the fourth quarter of 2016, as well as by this year’s strong beginning. Moreover, the forecast states that every EU member will quote a positive economic dynamics for the first time in more than ten years.

The Commission also forecasts that inflation pace will be higher as well. However, this will still be below the 2% goal in the mid-term. The euro zone’s CPI inflation will increase up to 1.7% in 2017 and up to 1.4% in 2018. However, the current forecasts from the EC are burdened with exceptional risk, which is related to unclear policy from the new American administration, which may have a larger impact on the economic growth than it was previously expected. There’s also Brexit, the American monetary tightening and negative consequences of China’s increasing debt.

The above mentioned readings had a limited impact on the euro. The EUR/USD went down from 1.0660 to 1.0620, mainly due to the stronger dollar. There will be no significant events in the American market today. However, investors have been speculating about Janet Yellen’s testimony tomorrow. As a result, the dollar’s index reached approximately 101 points. This phenomenon was supported by the weaker yen.

Positive data from Poland

According to the Polish Central Statistical Office (GUS), the CPI index increased by 1.8% YoY and by 0.4% MoM in January. Both of these results were better than expected. Food and beverages increased by 3.3% YoY and by 1.8% MoM. The largest increase in the Year over Year interpretations was quoted by transport (9%). However, this category quoted a decline in the Month over Month interpretation (negative 0.8%).

Today, the National Bank of Poland (NBP) published the payment balance data for December. The current account deficit appeared to be at the level of 533 million euro, which was a better result than the expected 625 million euro. Moreover, the deficit for November was revised from 427 million euro to 188 million euro. The NBP data shows a larger inflow of the EU funds (1.3 billion euro), which may have a positive impact on investments at the end of the first quarter.

Positive data has stopped the zloty’s overvaluation. The EUR/PLN went down from 4.23 to 4.31. Both the pound and the franc decreased as well (by approximately 0.01-0.02 PLN). The USD/PLN remained stable (approximately 4.06), mainly due to the global strength of the dollar. Tomorrow, the market will receive plenty information from both the European and the American market. Therefore, we may expect increased fluctuations on the zloty as well.

Tomorrow’s events

At 8.00 AM, we will know the data regarding the German consumer inflation for January. This will be this index’s second reading. The market consensus is at the level of positive 1.9% YoY and negative 0.6% MoM. Also at 8.00 AM, we will know the data regarding the German GDP growth for the fourth quarter (estimates: positive 1.7% YoY).

In January, Destatis published the GDP growth for 2016 (1.9% YoY), which was higher than in previous years (1.7% in 2015 and 1.6% in 2014). Moreover, this result has been achieved in the conditions of improving labor market. Tomorrow’s data will most likely be positive, but it should have a minor impact on the euro, due to the European Central Bank’s monetary policy. However, this would be a positive signal for the zloty, because Germany is Poland’s most significant economic partner.

At 10.00 AM, the Polish Central Statistical Office (GUS) will present the data regarding the economic growth for the fourth quarter. At the end of January, GUS published the initial GDP growth, which was at the level of 2.8% (3.9% in 2015). Looking at the industrial data for the fourth quarter, October appeared to be the weakest month. However, two following months brought positive results. The above mentioned index has minor chances to impact the zloty. The market consensus is at the level of 2.5% QoQ.

The British CPI for January will be crucial for the pound, which has been very volatile due to the Brexit process. Therefore, its reaction to the macroeconomic data may be intense. The British CPI has been in an upward trend for more than one year. Over the past few months, the dynamics increased additionally, due to the increasing raw material prices. In December, the CPI index was at the level of 1.6% YoY, which was its highest level in more than two years. Even though the market consensus is currently at the level of 1.9% YoY, the result may appear worse due to the fact that the oil prices have stopped increasing. This would limit the pound’s appreciation scale, because of a lower pressure on rate hikes in the United Kingdom.

At 10.30, Eurostat will publish the industrial production data for December. In November, this index was at the level of 3.2% YoY, against the expected 1.6%. This was this index’s largest growth in more than five years. The market consensus is at the level of 1.7% YoY. However, the euro’s appreciation potential is limited.