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Afternoon analysis 18.08.2017

18 Aug 2017 15:30|Bartosz Grejner

The industrial output and retail sales growth rate in Poland has remained at a high level, however, the degree of increases of the headline indices missed expectations. The zloty may incur some losses due to worse sentiment on the market. The dollar has been under pressure, but the value declines haven’t been significant.

Data from the Polish economy is in line with expectations

Today, the Polish Central Statistical Office (GUS) released data on industrial production, retail sales and producer inflation (PPI). At 2.2% YOY, the PPI index is above expectations, which pointed at 0.3 percentage points lower. On the other hand, increases in industrial production and retail sales (by 6.2% and 7.1% respectively) have been slightly worse than expected (8.4% and 7.5% respectively). In all three cases, however, the readings have been higher than they were a month ago.

In the case of industrial production, July's construction output has been particularly good and has recorded an increase of 19.8% (against market expectations of approximately 13%). Activity among construction companies has been also higher in the first seven months of this year (by 10.6%), compared to the same period last year.

The retail sales report has shown that Poles’ level of consumption remains high and will likely support a relatively high GDP growth rate in the next quarter. Sales of food, beverages and tobacco have increased by 6%, as have cars (including motorcycles and parts). In turn, the sales of clothing, footwear and textiles have increased to just over 10% and pharmaceuticals, cosmetics and orthopedic equipment have had an increase of nearly 12%.

Today's data should support the zloty, which suggests a sustained high growth pace of the Polish economy. However, the reaction of the Polish currency has been limited - its trading against the main currencies has been close to morning's levels. However, if we look at the zloty's relation to forint, it is clear that the Polish currency is still under pressure despite a favourable valuation. Since midday, the PLN/HUF pair is trading below the 71 level, which was close to recent 7-month lows.

An increased risk aversion

Yesterday's drops on the stock markets have continued today. Main European indexes lost approximately 1% until 3.00 p.m. The US currency has also incurred losses, however, relatively small ones - the dollar index (DXY) has fallen from 93.6 pts to approx 93.3 pts and the EUR/USD pair has fluctuated around the level of 1.175. Increased risk aversion has led to the "safe haven" escape, thus increasing demand and valuation, for example, for gold and the Japanese currency.

If such an sentiment is being maintained and the main US indexes will continue to fall, the zloty could be under supply pressure and lose value. In recent months, the Polish currency has been sensitive to any changes in market sentiment (in particular, to its deterioration). In the case of the absence of other significant events, the University of Michigan consumer sentiment index may cause a relatively large reaction on the dollar. The final impact, however, may be limited, as the survey is unlikely to include recent US events that have also put pressure on the dollar.

Next week's preview

The macroeconomics publication calendar for next week has been relatively limited, therefore, the fluctuations in the currency market may be relatively small.

On Tuesday, the ZEW institute will publish August's economists' sentiment index for the eurozone and Germany. In both cases, during recent months, a deterioration in growth expectations has been noticed, which has been affirmed by other indexes (i.a. Ifo or sentix). A further decline in ZEW’s index could confirm this trend and slightly weaken the euro. However, the impact of this data is likely to be limited as the euro's valuation has mainly been affected by the current monetary policy of the ECB as well as geopolitical factors.

On the following day, the preliminary data on PMI indexes of the industrial sector and services for the aforementioned economies will be published. Last month, the activity in the industrial sector has slowed down slightly, and median expectations suggested a possible weakening in the future.

In the afternoon on the same day, PMI indexes for the US economy will be also published. However, in this case, the ISM indexes have been the most important, and the differences between PMI and ISM have been relatively sizable. However, within the absence of other relevant publications that day, this data could generate relatively large movements of the dollar, given its recent weakness.

For the pound, Thursday's data on the economic growth of the British economy in the second quarter may be crucial. Although this has been already the second reading, its deviation from preliminary data (1.7% yearly, 0.3% quarterly) could cause relatively significant changes in the pound's value.

On Friday, Ifo will publish August's economic index of German companies. A month earlier, it had reached historic records. Currently, it has been expected to weaken slightly, from 116 pts to 115.5 pts. On the same day, a reading of GDP growth in the second quarter will be released.

Next week's may illustrate the current state of the German economy, and thusly affect the euro. Recent data has shown that, although the current situation has remained very good, expectations of future growth have decelerated, which may somewhat weaken the euro.

On Thursday, an economic symposium will be held in Jackson Hole (24 - 26 August). Taking into account the presence of central bank representatives, unexpected monetary policy comments may cause relatively significant movements in the currency market. The speeches of Janet Yellen (the chairman of the Federal Reserve), and Mario Draghi (president of the European Central Bank) will be expected on Friday.


18 Aug 2017 15:30|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:

18 Aug 2017 12:20

Daily analysis 18.08.2017

17 Aug 2017 14:53

Afternoon analysis 17.08.2017

17 Aug 2017 12:31

Daily analysis 17.08.2017

16 Aug 2017 15:18

Afternoon analysis 16.08.2017

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