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Afternoon analysis 14.12.2016

14 Dec 2016 16:40|Bartosz Grejner

The British labor market is in a relatively positive condition in the third quarter, despite the fact that employment decreased for the first time in more than one year. The industrial production in the euro zone, as well as in the USA, is worse than expected. The Polish current account is significantly better than expected. However, its impact is limited due to the Fed.

Positive data from British labor market

Today, the Office for National Statistics informed that the unemployment rate in the United Kingdom remained unchanged in October (4.8%). Moreover, this index remains near its eleven-year minimum. Jobless claims decreased from 13.3k (October) to 2.4k (November). However, employment rate decreased for the first time in more than one year (negative 6k). Employment rate for 16-64 bracket decreased as well. In the third quarter, this index was at the level of 74.4% (0.1% decline). However, this is still a better result than the one from last year (73.9%).

The general employment increased by 342k in comparison to the third quarter. This was mainly caused by an increase in the amount of women who work full-time. When it comes to employment type, the majority of the Brits has a full-time job (84.4%). The amount of self-employed increased by 129k. Moreover, the average weekly wage increased by 2.5% in the third quarter. This is more than expected (2.5%), as well as more than its previous level 2.4% (revised from 2.3%). The data from the British labor market had a limited impact on the pound. The markets are most likely anticipating the Fed’s announcement.

Limited impact of the data

Today, the American Census Bureau published the retail sales data for November. A 0.1% MoM growth was worse than expected (0.3%). Moreover, the growth from October was revised from 0.8% to 0.6%. The largest MoM decline was quoted among sport stores, music stores and book stores. When it comes to YoY interpretation, the largest decline was quoted in electronics sector (negative 3.8%). Retail sales data is a good index of consumption, which determined the majority of the GDP. Therefore, today’s data may be negative for the GDP growth in the fourth quarter.

The euro zone data regarding industrial production (published by Eurostat) in October was worse than expected. The production decreased 0.1% MoM, against the expected 0.2% growth. Even though this index increased 0.6% YoY, this growth was worse than the consensus (0.8%), as well as the growth from September (1.3%). The American industrial production data for November (published by the Fed) was slightly disappointing as well. Its general index went down by 0.4% MoM and by 0.6% YoY. The only positive aspect appeared in industrial processing index, which increased 0.1% YoY, but at the same time decreased by 0.1% MoM. The mining sector production decreased by 4.6% YoY. However, this index also increased 1.1% MoM. Nevertheless, the EUR/USD remains near 1.065. The above mentioned data was dimmed by the anticipation for the FOMC meeting.

Zloty is slightly stronger

The zloty was gaining value due to positive data regarding the current account (provided by the Polish Central Statistical Office). This was at the level of negative 393 million euro (vs expected negative 820 million and negative 999 million from September). However, it is difficult to expect any larger significance from this data for the zloty, due to today’s decision from the Fed. If the announcement is relatively hawkish, the EUR/PLN may return to the range of 4.45-4.50 and the USD/PLN may go above the level of 4.25. However, if the announcement is dovish (no changes in rate hikes expectations, Yellen concerned with the increasing dollar), the euro, as well as the dollar, will decline to the level of 4.40 and 4.10, respectively.

Tomorrow’s events

IHS Markit will publish the initial PMI data regarding the industrial production and the services sector for December (in Germany and the euro zone, among others). The market expects that both indexes will go down by 0.1 in the case of the euro zone. This means that the industrial production index will be at the level of 53.6 and the services sector index will be at the level of 53.8. However, it is expected that the upper trend for the German industrial production will continue. This has been observed since the beginning of the year. This index is expected to increase by 0.2 in comparison to November (54.3). However, the services sector index is expected to decline by 0.2. Taking into consideration the upper trend that has been going on for months in Germany, as well as in the euro zone (supported by positive data and expectations from GfK, Ifo and ZEW), we shouldn’t expect any significant negative deflections regarding these indexes. Therefore, until the readings are not significantly worse than the consensus, they shouldn’t have a negative impact on the euro.

At 1.00 PM, we will know the announcement, as well as the minutes from the December meeting of the Bank of England. The consensus doesn’t expect changes in interest rates level (0.25%) nor in quantitative easing. However, the approach towards the future interest rates from the Monetary Policy Council members may be interesting. We are currently observing an increasing inflation level, as well as the historically weak pound. However, the British currency has been strengthening since the beginning of November. Even though Mark Carney (the BoE chairman) announced that higher inflation will be tolerated, the speculations regarding potential rate hikes support the pound’s slow appreciation. However, rate hikes are currently troublesome. This is because the Brexit may slow down the economic growth in 2017 (even though the British economy seems to be resistant to leaving the EU) and the rate hikes may decrease the GDP growth. Therefore, the BoE will most likely decide for “the wait and see” attitude, in order to adjust its monetary policy to the future economic situation more accurately.

Investors may continue to analyze the decision from the Federal Reserve tomorrow. However, the market will receive relatively significant data from the American economy. At 2.30 PM, the Bureau of Labor Statistics will publish the CPI data for November. Even though the Fed takes into larger consideration the PCE data, the CPI data may give the view on general inflation, as well as on the potential PCE reading. The market expects inflation growth to reach the level of 1.7% YoY (positive 0.1%) and the base case inflation to reach the level of 2.2%. Tomorrow, we will also know the NY Empire State, as well as the Philadelphia Fed industrial indexes. The market expects both of them to grow. At 3.45 PM, Markit will present the industrial PMI index for the USA. This index has been increasing since September (54.1, currently). The above mentioned data will have a limited impact on the dollar.


14 Dec 2016 16:40|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:

14 Dec 2016 13:20

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13 Dec 2016 16:35

Afternoon analysis 13.12.2016

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12 Dec 2016 16:41

Afternoon analysis 12.12.2016

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