Afternoon analysis 19.12.2017

The zloty has been in better condition since the beginning of the day. Higher than expected increases in industrial production and retail sales signified the chance of maintaining the current profits. The dollar continued to be under pressure, despite the lowest current account deficit in three years.

Thriving Polish economy

The data from the Polish economy surprised positively for another month in a row. Today, the Polish Central Statistical Office (GUS) announced that retail sales increased in November by 10.2% compared to last year (2.7 percentage points lower was expected) and industrial production by 9.1% in the same period (consensus of 9.0%). Today's data may suggest a slightly higher than expected growth pace in Q4.

Moreover, the component of the industrial production also appeared to be positive. Manufacturing production (the most important component) recorded an increase of 10.9% year-on-year. The production pace in the construction output is still growing significantly. Enterprises in this sector recorded an increase of 19.8%, while a year ago a decrease of 12.8% was observed.

The retail sale was again driven by an increase in sales of clothing, footwear and textiles, which increased by 20.9% compared to November last year. Sales of furniture, home electronics and household goods as well as pharmaceuticals and cosmetics increased significantly by 15%. Therefore, it can be expected that economic growth in Poland will continue to be caused primarily by consumption. In Q4, investments may have a slightly larger contribution to GDP growth, due to their low base last year and their currently high dynamics.

The zloty before this data publication was much stronger today, although this was mainly due to the good sentiment that is maintained on the market. In addition, the weaker dollar during the day resulted in a drop of the USD/PLN quotations below 3.55 to the lowest level in two weeks, similarly to GBP/PLN (4.74).

The Polish currency appreciated by around 0.2% in relation to the regional forint, PLN/ HUF quotations increased to approx. 74.6 around 3.00 p.m. The EUR/PLN pair fell slightly below the 4.20 level, the lower level of the last three weeks. Today's production and sales data should help the Polish zloty maintain gains from earlier. The zloty condition could be threatened by a significant sentiment deterioration during the afternoon session on the US market. Although an adjustment of current levels (historical records) can be observed, the spectre of fiscal reform is likely to limit the risk of a deeper correction.

Weaker dollar

The US currency remained under pressure. The main currency pair rate (the EUR/USD pair) rose to approx. 1.183 around 3.00 p.m., the upper level of the last five days. Although in the long term lower taxes should stimulate inflation and therefore have a positive impact on the dollar, its quotations are currently under pressure from the lack of signs of inflationary pressures and the recent FOMC vote (where two members voted against the increase of interest rates).

Theoretically, better than expected data published this afternoon can help the dollar. The Bureau of Economic Analysis (BEA) presented the level of the US current account in Q3, a deficit of 100.6 billion turned out to be 16 billion USD lower than the consensus and nearly by 20 billion USD lower than was in Q2. It was also the lowest current account deficit in the US in three years. As a result, the current account deficit relation to the current GDP decreased significantly from 2.6% to 2.1%. However, the dollar practically did not react to the BEA publication. It can protect the dollar from further drops in the following hours when more investors from the USA will be active.

Tomorrow's preview

The calendar of scheduled events for tomorrow is relatively limited, but markets may discount the potential vote in the House of Representatives on the Tax Act (it is likely to take place this evening in European time). Although its voting is practically a foregone conclusion, markets have euphorically responded in recent days to the increased probability of the reform. Maintaining a positive sentiment may, in turn, favour the currencies of the emerging countries, including the zloty.

At 10.00 a.m., the European Bureau of Statistics (Eurostat) will present current account data in the eurozone in October. A month earlier, the surplus was unexpectedly amounted to 37.8 billion EUR after three months of growth in a row, 7.5 billion EUR above expectations, and at the same time proved to be the highest in history. The median of market expectations currently indicates 33.4 billion EUR. If this level (and a higher than consensus surplus) is again significantly exceeded, some strengthening of the euro can be observed. This may be particularly seen in the EUR/USD pair, given the current dollar's weakness. The response on the EUR/PLN is likely to be limited if the positive market sentiment is maintained.