Afternoon analysis 13.11.2017

October's inflation in Poland was in line with expectations (and preliminary reading) - however, food and energy prices increased significantly. The main currency pair (the EUR/USD pair) remained stable. Markets' attention may already shift to tomorrow, which is rich in publications.

Data with a limited impact on the zloty

Today, October's data on consumer inflation (CPI) in Poland was published and turned out to be in line with the preliminary estimates (2.1% YOY). More detailed data on price changes in particular categories has also been released. Once again, there has been a strong increase in food prices. Compared to October last year, they increased by 5.8%. At the same time, clothing prices fell by 4.6%, although the average increase of 3.5% compared to September was recorded.

The biggest increase - by 2.6% YOY - was recorded in energy prices, excluding food. The core index, excluding these two categories, probably will not surprise positively (the publication is due tomorrow). Also today, the National Bank of Poland published data on the current account in September. The deficit amounted to 100 million EUR, compared to the 622 million EUR expected. However, this is more than Friday's foreign trade data from the Polish Central Statistical Office (GUS).

As a result, today's data had a limited impact on the zloty. Starting from the beginning of the European markets' session, a slightly weaker condition of the Polish currency was observed. A slightly worse sentiment on the market, to which the zloty is particularly vulnerable - the main European stock exchange indexes have been losing about 1%. They erased the gains achieved after the announcement of the asset purchase program extension by the European Central Bank at the end of November.

However, the changes in zloty value are limited to the fluctuation range of the last days. The EUR/PLN moved in the range of 4.23-4.24, the USD/PLN pair between 3.62 and 3.64 PLN, while the CHF/PLN pair was in the range of 3.64-3.66 PLN. The pound quotations were noticeably lower (approx. 0.6%). Today, the GBP/PLN pair dropped slightly below 4.75 to the lowest level from 10 days.

The next few trading hours are unlikely to result in significant changes in the zloty. The euro and the dollar's quotations are relatively stable (the EUR/USD pair at 1.167 - close to Friday's closing level). Polish currency condition's deterioration could be caused by a deepening of falls on the European and the US stock exchange market.

However, the market participants' attention may be focused on tomorrow's publication of the economic growth pace for Q3 in Poland (10:00 a.m.). In the previous quarter, an increase of 3.9% in annual terms was recorded, with an expected growth rate of 4.5%. Exceeding this level could significantly strengthen the zloty, especially in the context of its recent positive publications - better than previous economic forecasts of the European Commission or also higher forecasts of the National Bank of Poland.

Tomorrow's preview

The relatively significant publications are planned for the next day, therefore the probability of major fluctuations in the currency market will be increased. At 8:00 a.m., Destatis will present preliminary data on the GDP growth pace in Germany in Q3. Eurostat, on the other hand, at 11:00 a.m., will publish a corresponding index for the eurozone. In the first case, the median of expectations assumes an annual growth of 2.3% and in the second case 2.5%.

Eurostat will also present September's level of industrial production in the eurozone. In the previous two months, production growth in the sector turned out to be better than market expectations, exceeding the 3% threshold in both. The market consensus points to an increase in production by 3.2%YOY.

The ZEW Institute will also publish November's confidence index at the same time, for the eurozone and Germany. In recent months, the growth pace for the single currency area has halted, and we have even seen a decline in the index. However, these are still relatively high levels in relation to the period of one year ago or even the first months of this year. In both cases, this index is expected to increase (20 points for Germany, 29.3 points for the eurozone).

Thursday's data for the single currency area will probably confirm the good sentiment and condition of Europe's largest economy as well as the eurozone as a whole. In the context of the dollar's weakening associated with the uncertainty surrounding the tax reform, the euro may appreciate against the US currency. However, it should not translate into a significant increase in the euro's valuation in relation to the zloty - a positive sentiment in the eurozone may also increase demand for the Polish currency.

The Office for National Statistics (ONS) will publish October's data on consumer inflation (CPI) in the British economy at 10.30 a.m. After reaching 5.5 years of record expectation levels in the previous month and reaching 3% per year, the market expectations point to a further increase in inflation to 3.1%. In the context of the significant weakening of the pound, which was observed today, this publication may cause significant fluctuations in the pound.

The increase in interest rates was relatively dovish (no further monetary tightening is expected in the nearest future). However, reading above the consensus could slightly increase the probability of more intensive discussions about the need for further rate hikes, which, in turn, could strengthen the pound.