Afternoon analysis 23.12.2016

The GfK consumer sentiment index suggests a strong beginning of the 2017 for the German economy. The zloty’s condition is improving and the EUR/PLN is testing the 4.40 level for the fifth consecutive day.

Increasing GfK sentiment

Today, the GfK indicated that the consumer sentiment index for January was at the level of 9.9 points. This is consistent with the consensus, as well as 0.1 points higher than the result for December. This index has been at a high level for the entire 2016. Only 0.6 points divided it from its fifteen-year records. In September, the consumer sentiment index reached the value of 10.2 points, which was the same value as in June 2015.

The subindex of economic expectations increased by 1.1 points (to 16.5). This is 13.5 points more than in January 2016. Unlike the American consumer index, Trump’s unexpected victory didn’t seem to directly impact the German consumer expectations.

However, the German household expectations subindex has been decreasing for the past three months. This month, this index increased to the level of 55.6 points, which is 5 points less than last year. This result may seem surprising regarding growing prices (caused by higher oil prices). This goes to show that the German consumers are very optimistic towards the forthcoming months, especially that their income growth will be higher than inflation growth.

Purchase prone index was the only one that decreased (negative 3.2 points). Currently, this index is at the level of 48 points (1 point less than last year). However, we need to emphasize that historically this is still a high level for this index. This will translate to a high level of consumer expenses in the forthcoming months.

Today’s GfK data will have a limited impact on the euro, which remains under the influence of the decision from the ECB, as well as of expectations regarding the American economic growth. The EUR/USD continued to move near the level of 1.045. However, the GBP/USD reached the level of 1.22, which is its lowest since the beginning of November.

EUR/PLN is near 4.40

The recent positive sentiment towards the emerging market currencies caused a minor wear-off of the zloty against the euro. Today, the EUR/PLN was yet again testing the level of 4.40 and went slightly below it. This pair has repeatedly tested this level over the past few days. However, it didn’t manage to succeed in going significantly below it. If a positive sentiment towards the emerging market currencies is sustained, the euro may become by 0.02-0.03 PLN cheaper by the end of the year.

The pound’s wear-off caused the zloty to strengthen against his currency as well. The British currency reached its lowest level since the end of November (5.16). Moreover, the zloty strengthened against the franc and the CHF/PLN reached the level of 4.10. Nevertheless, the dollar remains strong against the zloty, but the USD/PLN is currently by 0.06 PLN lower than its fifteen-year record.

Next week’s events

On Tuesday, we will know the Conference Board consumer index for December. This index reached its nine-year maximum in November, this was related to the unexpected Donald Trump’s victory in the American elections, as well as to his announcements of decrease in taxes, increase in infrastructural expenses and changes in regulations. A high level of consumer trust was confirmed by a similar index from the University of Michigan. The market expects the reading to reach the level of 108.1 (currently 107.1). Due to the lack of more significant data from the American economy next week, an inconsistent value of this index may increase fluctuations on the dollar.

At 2.30 PM on Thursday, the Census Bureau will publish the data regarding the turnover of goods balance for November. The reading from October showed a deficit at the level of 62 billion dollars. This was the largest deficit level since June. This result was caused by decreasing export of beverages and food, industrial materials, capital goods and consumer goods. Export was by 3.4 billion dollars lower than it was in September. However, import increased by 2.1 billion dollars. Currently, the market consensus assumes that the deficit will decrease by 0.5 billion dollar for November. If the result is significantly inconsistent with the consensus, this may cause a larger volatility on the dollar. However, negative PCE inflation data from yesterday showed that investors do not intend to change their attitude towards the dollar. The EUR/USD was going near the level of 1.05, but it quickly returned to its value from before the PCE data.

At 4.30 on Thursday, the Energy Information Administration (EIA), will publish its weekly report regarding the American oil market. Investors will focus on the oil supply level, as well as on the local production. The production index declined slightly in the report from Wednesday (2k barrels per day). However, two weeks ago we found out that this index was increasing by 99k barrels per day. Moreover, the oil supply level increased suddenly last week. This had a negative impact on the oil prices. The oil data may currently be more volatile, especially taking into consideration the recent agreements regarding production limits from OPEC countries, as well a from non-OPEC countries. This week, we have received quite dissonant information regarding implementation of limits in specific countries. We may expect statements regarding this topic within the forthcoming days. This may impact the oil prices.