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Afternoon analysis 20.12.2016

20 Dec 2016 16:32|Bartosz Grejner

German prices are higher than expected. This indicates that inflation in Germany is accelerating. Positive data regarding sales in the United Kingdom for December. However, its impact on the pound is minor. The polish currency has been relatively calm today.

Positive PPI

According to the latest data from Destatis, the German PPI inflation for November reached the level of 0.1% YoY (vs expected negative 0.2% and negative 0.4% for October). This was the first positive result of this index in approximately three-and-a-half years. Moreover, this index increased 0.3% MoM (vs expected 0.1%).

Energy prices declined the most (1.7% YoY). The highest growth was quoted for non-durable goods prices and durable goods prices (1.5% and 1%, respectively). Capital goods prices increased 0.6% YoY. In general, the PPI index increased 0.8% YoY and 0.3% MoM, excluding energy prices which are very volatile.

Moreover, this index has a chance to increase in December. This is due to increasing oil prices. However, the PPI data had a minor impact on the euro. The euro remains under dollar’s pressure, which was increased by Janet Yellen’s testimony from yesterday, as well as the events in Berlin. The EUR/USD increased its fourteen-year minimum in the second part of the day.

Retail sales and wholesale

Today’s CBI survey, which was conducted among 112 British companies (including 52 retail companies), showed that retail sales was higher than expected in December. However, this index is expected to slowdown in January. In December, approximately 51% of retail companies quoted sales growth and 16% quoted declines. This gave the balance of positive 35%, which is the highest since September 2015.

Clothing sector had the best result (positive 82%) and online sales was also above the average (positive 66%). However the majority of companies from these sectors also expects a decrease in January. December was positive for wholesale as well (positive 49%).

The weaker pound will most likely stand in the way of sustaining a high pace of sales. This is because the British currency will most likely limit purchase power. The British currency was globally weaker today. The GBP/USD reached the level of 1.23.

Zloty is calm

After the USD/PLN is 0.01 PLN lower in comparison to its level from this morning (4.27). However, the American currency remains near its fifteen-year records. Due to the stronger dollar, the EUR/USD increased its fourteen-year pits, while profitability of the American treasury bonds were increasing. The euro was significantly weaker due to the events from Berlin, among others (4.41). Also the pound decreased by 0.05 PLN against the zloty.

Tomorrow’s events

At 4.30 PM, the Energy Information Administration (EIA) will publish its weekly report regarding the American fuel market. The data regarding the oil supplies will be at the center of attention. This is because larger supplies are negative for oil prices. This is why this report may cause volatility on the oil quotations.

Tomorrow’s report may confirm an increase in the American oil production. This index increased by 99k barrels per day during the week, which finished on December 9th. The data from Baker Hughes indicated an increased activity of the oil producers as well, because the amount of active drills is at the highest level since the end of January (510).

Higher oil prices cause slate mining in the USA increasingly less profitable. Therefore, we should observe increase in its production in the forthcoming months. Theoretically, an increase in the American production means a larger global oil supply (negative for oil prices). However, the EIA estimates show that we will have to wait for a clearer growth of oil production for the next few months.

Meanwhile, the forecasts for the first half of 2017 show that the oil oversupply will quickly turn into the oil deficit. This should support the oil prices. Higher oil prices increase inflation expectations, which have recently fueled increase in profitability of the American treasury bonds, as well as the growth of the dollar. This scenario may not be positive for the zloty. An increase in profitability of the American treasury bonds causes the capital to go away from the emerging markets (including Poland). This would wear-off the zloty.

20 Dec 2016 16:32|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:

20 Dec 2016 12:54

Daily analysis 20.12.2016

19 Dec 2016 15:50

Afternoon analysis 19.12.2016

19 Dec 2016 13:21

Daily analysis 19.12.2016

16 Dec 2016 16:41

Afternoon analysis 16.12.2016

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