Afternoon analysis 16.11.2016

Mixed data from the British labor market. The American industrial production didn’t change in October. The dollar is the strongest against the zloty in fourteen years.

Unemployment rate is the lowest in eleven years, but employment growth slows down

According to the latest data from the Office for National Statistics, unemployment rate for the third quarter in the United Kingdom was at the level of 4.8%. This result appeared to be better than the consensus (4.9%), as well as the lowest in eleven years. Unemployment rate among men was at the level of 4.9% (the least since 1979) and at the level of 4.7% among women. On the other hand, employment rate increased to the level of 74.5%, which is the highest since 1971.

Even though the employment data was positive (positive 49k QoQ and positive 461k YoY), this was still definitely below the growth from the second quarter (172k). Moreover, jobless claims for October increased by 9.8k, against the expected 2k. This was the largest increase since May. The reading from September was also revised from 0.7k to 5.6k.

It’s most likely that increasing inflation had an impact on real salaries as well. The increase of this index was the lowest since February (1.7%). The British labor market seems to be slowing down. This, combined with growing prices (caused by inflation, as well as the weak pound) may cause a reduction in consumer expenses, which would decrease the GDP growth.

Industrial production is below expectations

The Federal Reserve published the data regarding the American industrial production for October. This index remained unchanged in comparison to the previous month, as well as the expected 0.2% growth. The data for September were revised from positive 0.1% to negative 0.2%. The Fed data show that the American industrial production has not increased since July.

Only a 0.2% MoM decrease in consumer goods production was quoted in October. On the other hand, building sector quoted the largest growth (0.6%). However, this data had a limited impact on the dollar, as well as on profitability of the American treasury bonds. Currently, they are mostly impacted by speculations regarding Donald Trump’s fiscal policy, as well as potential amount of rate hikes for 2017.

Zloty under supply pressure

The dollar is at its new, fourteen-year maximum against the zloty (4.16). This overlapped with a globally stronger dollar. However, when the dollar index went slightly down from its peak (100.5) and the EUR/USD went above 1.07, the USD/PLN went slightly down to approximately 4.14.

The dollar is not the only indicator of the zloty’s weakness. The zloty is currently at upper level of its fluctuation range against the franc, the pound and the euro. These currencies are at the level of 4.13 PLN, 5.16 PLN and 4.44 PLN, respectively. Profitability of the Polish ten-year treasury bonds went over 3.6%.

Tomorrow’s events

At 10.30, the Office for National Statistics will publish the data regarding retail sales in the United Kingdom for October. This index is crucial, because it’s an indicator of consumer expenses, which indicate the majority of economic activity. The market expects a 0.4% growth in comparison to the previous month. In September, this index remained unchanged in comparison to August. Moreover, a 5.3% growth is expected in the Year over Year interpretation (4.1% in September, which was the worst reading since March). If the reading for October is below the level of 4.1%, this could cause the pound to wear-off clearly.

At 2.30 PM, we will know a large portion of data from the USA. The market is most likely anticipating the most the CPI inflation data for October, which is published by the Bureau of Labor Statistics. The market estimates that the base case CPI increase will remain at an unchanged level of 2.2% YoY. We have been observing its gradual growth sicne the beginning of 2015. Even though the Federal Reserve focuses more on the PCE inflation when it comes to decisions regarding interest rates, the CPI data usually give hints regarding the future PCE. Therefore, if tomorrow’s data is significantly inconsistent with the previous reading, this could impact the dollar’s evaluation. The market is estimating that the future inflation will be higher, due to higher profitability of the American bonds, among others.

At 2.30 PM, the Philadelphia Federal Reserve will present the industrial processing index for November. The two recent readings were a positive surprise for the market. The market expects this index to be at the level of 8.7 in November. This is a lower result in comparison to October (9.7) or September (12.8). However, this would still be a relatively high level, regarding the results from the past five months. On the other hand, if this reading is above the level of 12.8, this would be its best result since June 2015. This could strengthen the dollar slightly.

At 2.30 PM, the American Labor Department will publish the data regarding last week’s jobless claims. Even though this index remains crucial, it has a limited impact on the dollar for the time being. This is because jobless claims have been near their forty-year minimum. Moreover deflections for this index have been relatively minor recently. The market consensus assumes that jobless claims will increase by 3k, to 257k.