Afternoon analysis 14.10.2016

Retail sales go up according to expectations, but sales of the control group show weak data. Poor Polish current account data has little impact on the PLN.

Mixed data published by the US Census Bureau

Retail sales in the US increased in September by 0.6% compared with a decline of 0.2% in August. The core index (excluding automobiles) was at 0.5% - slightly above the market expectations of 0.4%. It was the biggest increase since June in both cases. Theoretically, it’s good news for the dollar.

Hypotically, the retail control sales increased below the median of expectations (+0.4%) by 0.1% MoM due to two consecutive months of slowing down. However, it looks even worse when you look at it on a year-over-year basis – retail control sales rose merely 2.5%, which was the slowest gain since November 2015. Retail control sales (which excludes such categories as cars, gasoline stations, building materials) are important as they’re used to calculate the gross domestic product.

Today’s reading being below expectations can give credence to the fact that GDP increase could be weaker than the current projections. Atlanta’s Fed GDPNow projections point to a 2.1% Q3 gain. The lower than expected gain in GDP would suggest a relatively lower inflation growth, which in turn could weaken the dollar in the long run. After the report’s publication, the EUR/USD still oscillates around the 1.10 level.

A weaker current account of Poland

At 14.00 the Polish central bank (Narodowy Bank Polski) shared data about the current account. We should remind readers that a month ago they were well below expectations: -€800m vs. -€439m analysts’ median. The market expected a reading around -€319m, but once again the C/A failed to meet the expectations with a reading of -€1047m. That was the worst C/A level since August 2015.

Just as we mentioned in our morning comment, the Polish currency (PLN) moves in a very narrow range in the last few days. The reactions to its quotations were relatively calm, though. It was when the data from the US came up, that the zloty start to be a little bit more volatile. The USD/PLN pair stood out, however we’ve been noticing it was more volatile due to arriving data from the US economy and speculation about the rate increase in the US as well.

Fed Chief Janet Yellen’s speech at 19.30 (GMT+2) could still affect the zloty today. We don’t expect Yellen to be hawkish. If she’s more dovish (than usual), we could see the zloty around the 3.87 – 3.88 range in relation to the Dollar.

Monday’s preview

An hour before the bell rings on the US stock exchange, we’ll know the reading of the NY Empire State Manufacturing Index. Manufacturing has been slacking a bit in relations to other sectors (production- and labor-wise), which has been confirmed by data so far. July’s and August’s readings of the aforementioned index were both negative and below market expectations. Median of analysts’ expectations for September point to a 1.00 gain (vs. -1.99 in August).

At 15.15, the Fed will publish the industrial production data from September. After it rose in June and July respectively by 0.4% and 0.6% MoM, the August reading showed a 0.4% decrease. Industrial production data is historically quite volatile, so its impact is limited in the long run. However, a reading that is significantly below market expectations could cause a slight decrease in the dollar’s value for the short term and negatively impact Q3 GDP growth projections as well.

The European Central Bank’s interest rates decision and, in particular, President Mario Draghi’s press conference that follows, will probably be the most important event during the next week. Recently, there has been a lot of information coming in from the news agencies (e.g. Reuters) claiming that QE tapering was meant to be discussed. The rising emotions muted though, after the ECB’s minutes were published (with no trace of QE tapering). However, all the recent talk and media frenzy about QE has caused investors to await Draghi’s speech with particular interest.