Afternoon analysis 21.12.2016

The British companies are planning to raise prices in 2017. Net loans for the public sector in the United Kingdom. Polish consumer sentiment is weakening.

Weaker pound and Brexit

The British Office for National Statistics published the report regarding the British public sector. This sector’s net loans were at the level of 12.2 billion pounds in November. The market consensus expected that the result will be approximately one billion pounds lower. Moreover, the reading from October was revised from 4.30 billion to 4.32 billion.

Positive value means that the public sector had to borrow more money in order to balance the budget. Net investments for November decreased to 2.7 billion pounds (negative 0.7 billion YoY), excluding public banks. Moreover, the net debt increased by 58.6 billion pounds in November. This is negative information for the pound, which was losing against the majority of currencies today.

However, the surveys from the Bank of England show that the majority of companies (approximately 80%) is planning to raise their prices at least by 1% in 2017. Inflation of production costs is caused by deteriorating condition of the pound. Even though this is positive for export or tourism, its long-term effects may gradually limit purchase power of the Brits. Therefore, the GDP growth may decrease.

The dollar was clearly weaker today. The EUR/USD went up to approximately 1.045, while the USD/JPY reached the level of 117.2 at approximately 4.00 PM. The pound took advantage of this correction on the dollar (GBP/USD increased by approximately 0.1%). However, the British currency remained weak against the majority of currencies and lost approximately 0.4% against the euro.

Worse sentiment in Poland

The Polish Central Statistical Office (GUS) informed that there was a deterioration in the current, as well as in the future sentiments in the Polish economy. The current index of consumer trust decreased by 1.3% MoM. Evaluation of the household financial situation decrteased the most (negative 3.5% MoM). However, this component gained approximately 5.6% YoY.

Accelerating index of consumer trust was negative as well (negative 1.3% MoM). The most significant decline was quoted in the case of expectations towards the future unemployment level (negative 3% MoM). Another negative component were the expectations regarding the country’s future economic situation (negative 1.1%). However, the entire accelerating index of consumer trust reached the level of positive 7% YoY.

The lack of appreciation pressure on the dollar, as well as the lack of significant macro data, caused the zloty to be relatively calm today. The Polish currency strengthened against the pound, as well as against the dollar, but remained unchanged against the franc or the euro. However, the zloty remains weak against the forint and lost approximately 0.3%.

Tomorrow’s events

At 2.30 PM, the Bureau of Labor Statistics (BLS) will publish the third reading of the American economic growth for the third quarter. This index appeared by 0.4 percentage points higher in its first reading from October. The second reading revised this result up, to the level of 3.2% QoQ. The marker expects the next reading to reach the level of 3.3%.

The Census Bureau will publish the data regarding changes in orders for durable goods for November. This index quoted minor changes in August and in September (positive 0.1% MoM and positive 0.2%, MoM respectively). The result from October was at the level of positive 1%, which was significantly better than expected (0.2%). There only were two better results within the last two years (January and July 2016). The market expects the reading from November to be at the level of 0.2% MoM.

The Labor Department will publish the weekly jobless claims. After reaching a record low level at the beginning of November (233k), this index has been increasing over the past few weeks (254k two weeks ago). However, this is still near its record level and if it remains below 300k, it shouldn’t have a significant impact on the dollar.

At 4.00 PM, the BLS will present the PCE data for November. This data is significant, because the Federal Reserve takes it into consideration while forecasting inflation. The base case reading for October (excluding energy and food) was at the level of positive 0.1% MoM and positive 1.7% YoY. The market expects similar results for November.

The EUR/USD remains near 1.04. Tomorrow’s data may decide whether the main currency pair will go below this level. Moreover, this may translate to profitability of the American treasury bonds. If they increase (in the case of positive data), this would not only strengthen the dollar, but also wear-off the emerging market currencies, including the zloty.