Afternoon analysis 18.01.2017

18.01.2017 16:35|Bartosz Grejner

The data from the British labor market is positive, but its impact on the pound is limited. The consumer inflation from the USA for December was consistent with the consensus. However, the industrial processing was worse than expected. The Polish economic data was quite disappointing.

Positive data from British economy

The British labor market remains relatively resistant to Brexit. The Office for National Statistics (ONS) informed that the average salary index increased by 2.8% YoY for December. The unemployment rate remained at its eleven-year minimum (4.8%). However, jobless claims for December decreased by 10.1k.

Between September and November, 2016, the employment rate for the 16-64 age bracket reached the level of 74.5%, which was basically the same as it was during three months before. However, this index increased by 0.4% YoY (294k). Despite positive data from the British labor market, the pound lost against the majority of currencies. This is a result of a work-off of yesterday’s growth against the dollar. According to Bloomberg, this was the largest one-day appreciation of the pound since 1993. Yesterday, the GBP/USD reached the 1.24 level and today it went down to approximately 1.228.

American inflation

Today, the Bureau of Labor Statistics presented the American CPI for December. This reading appeared to be consistent with the market consensus – inflation increased by 2.1% YoY (1.7% in November). The baseline index (excluding fuel and food) increased by 2.2% YoY, which was consistent with the consensus as well. Moreover, the Federal Reserve data shows that the industrial production increased by 0.8% MoM (and 0.5% YoY) against the expected 0.6%.

This growth was mainly caused by an increase in the public sector activity (6.6% MoM). However, an increase in the industrial processing was worse than expected (0.2% MoM vs 0.4% MoM).

The dollar strengthened this afternoon. The EUR/USD went down from 1.07 to 1.066. Moreover, the dollar’s index (DXY) went up to 100.9. However, the above mentioned data caused the dollar to decline and the EUR/USD returned near 1.07. The pound lost value as well, due to the work-off of yesterday’s sudden appreciation caused by Theresa May’s testimony regarding Brexit. However, due to the dollar’s decline, the GBP/USD managed to go slightly above 1.23.

Disappointing increase in salaries

The Polish Central Statistical Office informed that the average monthly salary increased by 2.7% YoY in December. This result was worse than expected (4%), as well as the worst in one-and-a-half year. In 2016, salaries increased by 3.8%. However, an increase in employment for the company sector was consistent with the market consensus (3.1% YoY and 2.8% in the entire 2016).

The zloty was stable this afternoon and the EUR/PLN remained within the range of 4.36-4.37. Due to the globally stronger dollar, the USD/PLN was near the 4.09 level. However, weaker condition of the pound caused the GBP/PLN to go down from 5.065 to 5.02. Currently, investors will focus on the data regarding the industrial production and the retails sales, which will both be published tomorrow (read more below).

Tomorrow’s events

Tomorrow’s decision from the European Central Bank, regarding interest rates and the QE program, will be announced at 1.45 PM. This will most likely be this week’s main event. Even though that no changes in both of these parameters are expected, investors will focus on Mario Draghi’s testimony. They will look for potential suggestions of the asset purchase tapering. Such suggestion would support the euro, which remains weakened by the ECB policy.

Tomorrow will also bring significant data for the Polish economy. The Polish Central Statistical Office will publish the industrial production data, as well as the retail sales data. This data may be crucial from the GDP growth from the fourth quarter. Readings for October were disappointing, by the ones for November appeared to be a positive surprise. Therefore, if tomorrow’s data is significantly inconsistent with the consensus (the industrial production: positive 1.6% YoY, the building production: negative 13.3%, retail sales: positive 6.2%), this would cause larger fluctuations on the zloty due to changes in the expected GDP growth.

At 5.00 PM, the American Energy Information Administration (EIA) will publish its weekly report from the US oil market. This report has very often increased volatility of the oil prices. Investors will mainly focus on the oil supply. The higher this index is, the larger pressure on a decrease in prices it will cause. Last week, it appeared that it increased by 4 million barrels (more than 12 million, including distillates). Currently, the market expects a decrease in oil supply, as well as in distillates supply (0.96 million and 0.86 million, respectively).

Taking into consideration the recently higher oil prices, information regarding changes in the US oil production will be interesting as well. Last week’s report showed a 176k barrels per day growth of this index. Next growth like this would cause speculations regarding a faster than expected return to the slate production, as well as supply pressure on the oil prices.

 


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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