Afternoon analysis 14.03.2017

14 Mar 2017 15:31|Bartosz Grejner

The American producer inflation for February appeared to be better than expected. However, this data had a minor impact on the dollar. The Polish inflation growth was by 0.1 percentage points better than expected and at the same time the highest in more than four years.

PPI is better than expected

Today, the Bureau of Labor Statistics (BLS) informed that the American PPI for February increased 2.2% YoY, against the expected 2%. The largest increase was quoted in the case of the energy goods prices (0.6% MoM). Moreover, approximately 70% of the PPI growth was caused by an increase in the electricity prices (1.6%).

However, baseline PPI increased 1.8% YoY. The dollar’s reaction to this data was limited. Moreover, the EUR/USD was pushed from the range of 1.063-1.065 to 1.062.

The lack of the dollar’s reaction was most likely caused by the lack of changes in the profitability of the American bonds. Larger fluctuations may appear along with a more intense activity from American investors. Theoretically, better than expected PPI may increase inflation pressure in the USA, as well as the likelihood of more rapid rate hikes in 2017.

Polish inflation

According to the Polish Central Statistical Office (GUS), the Polish consumer prices index for February increased 2.2% YoY, which was by 0.1 percentage points better than expected. This growth was mainly caused by an intense growth of the fuel prices (21.2% YoY). Moreover, the food prices increased 4.3% YoY. The largest decrease was quoted in the case of the clothes prices (5.5% YoY). What’s interesting is that this index decreased by 6% compared to December 2016.

The zloty’s reaction to this data was minor, because inflation growth has been a global phenomenon. Nevertheless, the EUR/PLN was pushed from the range of 4.33-4.34 to 4.32 shortly before the above mentioned data was published. The zloty’s behavior against both the dollar and the franc was similar. However, the GBP/PLN stopped its declines due to a slightly better condition of the pound (the GBP/USD increased from 1.21 to 1.215).

Tomorrow’s events

Tomorrow, the Federal Reserve will announce its decision regarding interest rates. In addition, Janet Yellen’s press conference is scheduled. This most likely will be this week’s main event. However, before this information has been revealed, we will receive some other significant data.

At 10.30, the Office for National Statistics will publish the data from the British labor market for January (salaries, the unemployment rate) and February (jobless claims). The market will mainly focus on salaries, because the unemployment rate has been at its eleven-year minimum and the jobless claims index is relatively volatile.

The salaries index has been gradually increasing since approximately June 2016. However, there was a slight decline of this index from 2.8% YoY (December) to 2.6% YoY. Currently, the market consensus is at the level of 2.4% YoY. This data may show an increase in the private income growth, as well as indicate the level of inflation pressure. If the final result is significantly different than the consensus, the pound’s fluctuations may increase.

At 13.30, the American Bureau of Labor Statistics will present the CPI data for February. However, the market finds the PCE index more significant, since it gives more hints regarding general trends in prices. Recently, the American inflation has been increasing quite rapidly (2.5% YoY in January). This sudden growth was mainly caused by an increase in the raw material prices. Nevertheless, the CPI growth for January was also larger than estimated (2.3% YoY).

The CPI reading may significantly increase the dollar’s fluctuations, as well as the profitability of the American bonds. A better than expected reading would increase the likelihood of four rate hikes for 2017 and this would cause the dollar to grow.

Due to the fact that basically rate hikes in March have already been decided, investors should focus more on the FOMC announcement, which will be published at 19.00. Janet Yellen’s press conference is scheduled for 19.30. If the Fed’s chair even mentions the likelihood of four rate hikes, this would make her statement relatively dovish and increase the dollar’s value.

14 Mar 2017 15:31|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:

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