Afternoon analysis 19.07.2016

The American data is close to estimations. Despite that inflation is higher than expected, the pound is under clear pressure today. The IMF reduced the growth forecasts for the United Kingdom. The zloty is slightly stronger due to the higher than expected retail sales data.

The afternoon publications from the USA can be considered neutral for the dollar. Theoretically, an increase in initiated investments in the real estate sector was higher than expected. However, the past month data was revised down. The building permits were close to expectations. The May readings were not updated.

In general, the new investment data, as well as building permit data within the range of 1.1-1.2 million, can be considered as moderately positive. We have been observing similar readings for almost a year. This publication does not have any greater significance for the Federal Reserve. Positive data regarding retail sales, as well as industrial production from Friday is much more important.

Pound's slide

The British currency clearly lost value today. However, there actually was no catalyst of this overvalue. The ZEW readings that we wrote about in today's daily analysis, were certainly not helpful. On the other hand, the base case inflation was slightly higher than expected (1.3% y/y vs 1.4% y/y). The producers inflation was slightly higher as well.

However, it is still unknown whether the Bank of England will take the current data under consideration during the next meetings. We may basically be certain that it will increase, since the pound lost 10% of its value. However, if the currency effect fades away, it will probably decrease due to a lower demand, or a slower growth of salaries.

On the other hand, the International Monetary Fund (IMF) announcement can be received negatively regarding the pound. The Fund has clearly revised the United Kingdom's economic growth perspective. Due to Brexit, the British economy will grow 0.2% less this year than previously estimated (1.7%) and 0.9% less next year (positive 1.3%).

The Fund estimated in the forecast commentary that, “Brexit translates to a significant increase in economic, political and institutional uncertainty.” However, the IMF added that, “it is very difficult to estimate potential consequences of the recent events for the time being.” As a result, the GBP/USD is beginning to reach the area of 1.31 this afternoon, after it started the day near 1.3250.

A visible revision of growth for Germany may by a disturbing element of the IMF report. It will be at the 1.6% level in 2017, while the previous forecasts indicated a 2.0% economic growth. This may be negative for Poland as well, especially in the second half of 2017. This is when the income in form of the 500 plus program begins to fade out.

Data from Poland

The industrial production data from the Polish Central Statistical Office (GUS) was close to the forecasts (positive 6.0%). However, the building production was disappointing yet again. They reduced by 13% y/y. On the other hand, retail sales was by 0.9% higher than the consensus. It was at a positive 4.6% level (including inflation), and 6.5% considering its volume.

Economists will probably try to find an impact of the 500 plus program on the data. If we compare the trend on particular components for the first five months, we will see an acceleration of categories such as “Fabrics, clothes and shoes”, as well as “Furniture, electronics and household appliances.” The acceleration was by approximately 3-4%. However, it is interesting whether this dynamics will continue to increase, or are we dealing with a complete impact of the 500 plus program.

The readings had a slightly positive impact on the zloty. However, the Polish currency gained quite a lot since the beginning of the week. Thus, its appreciation potential is limited. Moreover, we did not receive the information regarding the pension age before 16.00 (4.00 PM).