Afternoon analysis 17.07.2017

Better than expected data from the Chinese economy slightly improved the sentiment. Inflation data in the eurozone in line with expectations and with limited impact on the euro. The Polish currency is in better shape after Friday's weak data from the US.

Market waits for the ECB

Today, the Chinese statistical office reported very good macroeconomic data from the Chinese economy, which at the same time exceeded market expectations. The pace of economic growth in the second quarter was maintained at 6.9% YOY, although it was expected to be 0.1 pts lower.

Another positive surprise was in June's industrial production - it increased by 7.6% YOY, equaling the highest level achieved in March. Additionally, retail sales growth of 11% YOY (expected 10.6%) was the highest since December 2015. Today's data from China increased the likelihood of maintaining high economic growth (and demand), which may translate into global economic growth and the prices of energy commodities.

Today, the statistical office of the European Union (Eurostat) published the final data on the eurozone's price growth. Consumer inflation (CPI) fell in June to 1.3% in the single currency region. The decrease was mainly due to a 1.8% YOY drop in telecommunication prices and 1% YOY in social protection. The highest inflation in June (in annual terms) was recorded in countries which were last to join the euro area, i.e. Lithuania (3.5%), Latvia and Estonia (3.1% each).

However, the inflation data had a relatively limited impact on the euro. It was consistent with both initial estimates and market expectations. In addition, the investors' attention will be primarily focused on the European Central Bank's (ECB) statement (and the press conference) of the European monetary policy (on Thursday). Until that day, the euro quotes are likely to be relatively stable.

Stronger zloty

Friday's US labour market data, clearly weaker than expected, helped the zloty, which has noticeably gained in particular to the dollar, increasing to the highest value in nearly two years. By contrast, the franc has recovered some of its recent losses today. The euro lost about 0.3% in relation to the Swiss currency, which has translated into a strengthening of the franc to the zloty. The CHF/PLN exchange rate rose to approx. 3.82, although it was still below 3.80 seen on Friday.

For the zloty, the industrial output and retail sales' data may be the most important this week, which may give guidance to the level of GDP growth in the second quarter, as well as this Thursday's statement of the ECB. Around the time of the aforementioned publications, we should expect an increased level of fluctuations in the Polish currency, although the final changes in its value are unlikely. The zloty could lose in the case of significantly worse-than-expected data on production and retail sales, although the risk of such a scenario is limited.

Tomorrow's preview

At 10.30, the National Statistics Office (ONS) will publish June's data on consumer inflation in the UK's economy. The inflation growth rate has accelerated rapidly from just over a year and a half - in November 2015 it was still 0.1% YOY and in May 2017 it was 2.9% YOY. Another inflation reading at such a high level could reinforce the chance of faster-than-expected monetary tightening, which has currently been speculated.

On the other hand, higher inflation exerts pressure on real wages of the British, which according to the ONS data, have been declining. This may, in turn, translate into lower consumption levels, resulting in a negative impact on the pace of the economic growth. Therefore, potential appreciation resulting from a high inflation reading seems to be relatively limited.

Half an hour later, the ZEW Institute will present the economic sentiment index for Germany and the eurozone, among others. Last month, the level of this index for the single currency region rose to nearly two-year records, although in Germany its overall level slightly decreased. The median of market expectations currently points to slightly lower readings in July, compared to a month ago. However, the sentiment levels will likely still be close to two-year highs and eventually have a relatively neutral impact on the euro.

At 2.00 p.m., the Polish Central Statistical Office (GUS) will publish June's data on wages and employment in the corporate sector in Poland. In the recent months, there has been an increase in employment at 4.5% - 4.6%. Wages increased in the previous five months at a rate of at least 4% and in May wages recorded the highest annual growth in over 5 years (5.4% YOY). Although this data may confirm a positive trend on the Polish labour market, it will probably have limited impact on the zloty. The Polish currency may be influenced to a much greater extent by industrial production, retail sales and producer inflation (PPI) data which will be published the following day (also by GUS).