Afternoon analysis 20.11.2017

Positive macroeconomic data from the Polish economy with only a limited impact on the zloty. Problems with forming a coalition in Germany didn’t worsen the sentiment in the market – the euro was relatively stable.

Industrial output exceeds expectations

The Polish Central Statistical Office (GUS) published today positive data regarding the economy. The producer inflation index was 3% in October on a yearly basis (consensus: 2.9%), industrial output increased by 12.3% (consensus: 10.4%) and retail sales by 8% (consensus: 8.2%). In terms of the GDP growth rate, the two latter were especially significant.

A 12.3% year-on-year increase in production proved to be the biggest in slightly over 7 years. Even compared to September, the output was 5.3% higher. Among industrial companies, the biggest increase was seen among manufacturing firms, which saw a 14% year-on-year growth. Additionally, the construction sector posted a significant gain as well – its output increased by 20.3% in the same period, while a year ago there was a 20.1% decrease.

The pickup in production in October could be a result of an effect of a low base in 2016 (when a 1.3% drop was noted) or one more working day, among others. However, such factors don’t fully explain such a big increase in output – it should mainly be attributed to a better condition of the Polish economy. The recent months also saw a bigger inflow of European funds than at the beginning of the year, which could also influence October’s good result. It increases the probability of a better-than-expected GDP growth rate in Poland in Q4 as well.

The zloty reacted positively, albeit the reaction was limited in the first hour since the publication. The EUR/PLN pair fell marginally below 4.23, although it had been in downward trend even before the GUS data. In relation to the dollar, zloty traded closely to Friday’s level (3.594); there also wasn’t any significant change to the regional Hungarian forint.

The data should theoretically strengthen the zloty. However, a factor that could curb investors appetite for the Polish currency is the uncertainty regarding the formation of a new coalition in Germany. If the market sentiment doesn’t deteriorate and the euro doesn’t considerably lose to the dollar, the zloty could be somewhat stronger in the later hours.

The main currency pair (EUR/USD) was relatively stable as the day progressed. After reaching 1.18 at the beginning of the European session, the pair steadily moved lower to approx. 1.1770 at 3 p.m. However, the sentiment was still positive in the market (main European indices were in the green) and movements around the 1.18 level were the norm in recent days. The dollar’s appreciation continues to be hindered by problems in introducing the tax reform in the US. The US Senate will probably vote on it after Thanksgiving.

Tomorrow’s preview

The calendar of planned important publications for tomorrow is almost empty. At 12 p.m. CBI will publish the results of the newest survey on British manufacturing companies. In the last month’s survey, the balance of expectations in terms of production was unexpectedly below zero at -2 (which meant that more companies expected a decrease in volume of production than an increase), although a balance of +9 was expected.

It was the first negative balance since November 2016. The market consensus points toward a reading of +3 this month. Yet another reading in the negative territory could somewhat weaken the pound, however, a potential reaction to the CBI publication will probably be limited tomorrow. The British currency could react to a much greater extent to information regarding the Brexit bill negotiations. Progress in this matter, also in terms of increasing the amount proposed by the British side, could help the pound maintain an upward trend.