Afternoon analysis 18.10.2017

Industrial production in Poland has slightly disappointed the market expectations, but retail sales exceed them again. The CHF/PLN fell below the 3.66 level and reached the lowest exchange rate since releasing the peg to the euro. Worse than consensus, data from the US real estate market may be a burden for the dollar.

New lows on the CHF/PLN pair

Today, the Polish Central Statistical Office (GUS) published September's data on industrial production and retail sales. Production in the industrial sector increased by 4.3% as compared to the same period of the previous year, which turned out to be below market expectations at the 5.2% level. This was also the weakest growth pace since April this year.

However, the production data did not turn out to be bad. One of the main components, manufacturing production, increased its output by 5.8% compared to September last year. A significant increase, another month in a row, was recorded also in construction production, which increased by 15.5% as compared to September 2016, when its decrease by 15.3% was recorded.

A positive surprise once again was made by retail sales, which growth pace increased for the third consecutive month. September's data showed an increase by 8.6% on an annual basis, 0.7 percentage points above expectations - sales grew at the fastest pace since March this year. The highest increase, i.e. by 26.6% on an annual basis, noted the clothing and footwear sales (and textiles), whereas in the smallest noted cars, motorcycles and car parts (by 2.9%).

Taking into account that economic growth pace in Poland is currently mainly created by consumption, its growth above expectations may be a positive signal for the zloty and may support it in the following trading hours. In favour of the Polish currency worked the positive sentiment in the markets and further records of the German stock index (DAX).

Today, the CHF/PLN rate fell slightly below the 3.66 boundary and set new lows in values since January, 15th 2015, since the releasing of the peg to the euro by SNB. The zloty also gained around 0.2% in relation to the euro, pound, dollar and the forint. If a positive sentiment continues in the following hours, in particular, if the main US stock market indexes continue to gain and beat further historical records, the zloty could continue the current appreciation trend.

No major changes for the pound, dollar and euro

The limited calendar of scheduled macroeconomic publications in the afternoon made the quotations of the euro, pound and dollar relatively stable. However, the relatively weak data from the US real estate market have been published. In September, the index of housing starts fell by 4.7% per month, and the number of building permits issued also incurred a decrease by 4.5%.

In both cases, these readings were below market expectations, which indicated a decrease of 0.5% and 2.9%, respectively, in relation to the previous month. Although this data is rather secondary in the terms of its impact on the dollar's quotation, in the context of the absence of other publications, the dollar may depreciate slightly in subsequent hours.

Tomorrow's preview

At 10.30 a.m., the Office for National Statistics (ONS) will present September's retail sales data in the UK economy. While negotiations on Brexit may currently be the most important factor influencing the pound's valuation, positive data on retail sales may indicate higher consumption and as an effect, have a positive impact on GDP growth.

The consistently good condition of the British labour market (confirmed by today's ONS report) connected with a solid sales reading might increase the probability of rate hikes, which could support the pound. However, the chances for a very good reading of retail sales seem to be limited.

Although in August it increased by 2.4% on a yearly basis, significantly above expectations (1.1%), the growth pace has been in a downward trend since October 2016, when we observed an increase in sales by 7.2%. The median of market expectations indicates an increase by 2.1% in September. It seems that only a reading indicating of an upward trend in sales growth (2.4% or above) could have a positive impact the pound.