Afternoon analysis 17.01.2017

Highly anticipated Theresa May’s testimony has strengthened the pound. The zloty is following the global trend.

Stronger pound

Today, the Office of National Statistics (ONS) published the data regarding the British CPI for December. A 1.6% YoY growth appeared to be better than the consensus (1.4%), as well as the reading from November (1.2%). At the same time, this was its highest result in the Year over Year interpretation since June 2014. This was mainly caused by an increase in prices of transport, hotel and restaurant services. However, decreasing prices of food and beverages had a negative impact on the general CPI index. The CPI baseline index also increased by 1.6% YoY, which was also better than expected.

This data cause the pound to strengthen before Theresa May’s testimony, which started at 12.45 AM. She said that the agreement with the EU will be voted by both chambers of the British parliament. It seems that this statement convinced investors to strengthen the pound, which increased 2.5% against the dollar. The will to make temporary contracts might have been interpreted positively as well. This would ensure the most smooth method of leaving the EU market and give the British entrepreneurs a feeling of stability.

May also said that she wants the United Kingdom to regain control over immigration (from the UE, as well). She emphasized that this would result in leaving the EU market, because this would mean obeying the EU regulations, without impacting them. On one hand, she emphasized a will to the best possible access to the EU market. On the other, she also said that the days of the UK contributing (financially) to the EU budget are numbered. We also shouldn’t expect that the negotiation details will be revealed during the negotiation process. Theresa May claims that this would be inconsistent with the United Kingdom’s interest.

Due to the pound’s strengthening, the GBP/JPY increased from 137 to 140. This caused the USD/JPY to grow as well, despite the dollar’s global weakness, which was caused by Donald Trump’s interview with The Wall Street Journal (statements about the too strong dollar). Due to Trump’s statement, the EUR/USD reached the level of 1.07 for the first time in more than one month.

Zloty is dependent from global events

Today, the zloty was volatile against the dollar, as well as against the pound. The American currency was globally weaker today. This caused the USD/PLN to go below 4.08. However, statements from the British prime minister caused the pounds appreciation, which increased the GBP/PLN from 4.96 to 5.04. The EUR/PLN remained at the level of 4.37.

Tomorrow’s events

At 10.30 AM, the Office for National Statistics (ONS) will publish the data regarding salaries, as well as the British labor market for November. The salary data is a good way to estimate the future consumption level. In 2016, we have been observing an increase in salaries since March. In October, this index reached the level of 2.5%. The market consensus is currently at the level of 2.6%, which would be its highest value since September 2015.

When it comes to the labor market data, the unemployment rate is expected to reach the same level as in October (4.8%, the lowest value in eleven years). We will also know the amount of jobless claims for December. This index’s result for November was very positive (2.4k vs 5.5k). Currently, the market consensus assumes that jobless claims will increase by 5k. Tomorrow’s data may increase fluctuations on the pound, which has been relatively volatile recently, due to Brexit.

At 2.00 PM, the Polish Central Statistical Office will publish the data regarding salaries in the company sector, as well as employment for December. Both of these indexes achieved positive results in November (positive 3.1% MoM and 4.0% MoM, respectively). The data regarding salaries may suggest the potential level of the consumer expenses, which may impact expectations regarding the economic growth for the fourth quarter, hence, the zloty’s evaluation.

At 2.30 PM, the American Bureau of Labor Statistics will publish the CPI data for December. This data may give investors some hints regarding the general level of prices and impact the dollar. The CPI has been increasing since July 2016 (0.8%) and its reading reached the level of 1.7% in November. However, the baseline index was within the range of 2.1%-2.3% throughout the entire 2016. While the market consensus shows that inflation will increase by 2.1% in December, the baseline index is expected to increase by 2.2%.

At 3.15 PM, the Federal Reserve will present the industrial production data for December. In November, this index decreased by 0.4% MoM, which was a negative surprise for the market. This was mainly due to the public utility sector (negative 4.4% MoM). The market consensus is currently at the level of positive 0.6% MoM. The industrial processing index, which has been contributing the most to the industrial production’s general result, is expected to be at the level of negative 0.4% MoM. Taking into consideration the global dollar’s wear-off caused by statements from Donald Trump, tomorrow’s data may increase fluctuations on the American currency.