Afternoon analysis 25.01.2017

The pound has been supported by an increasing optimism among the British entrepreneurs, as well as by Theresa May’s announcement regarding the Brexit plan. The zloty remains calm.

British optimism

The CBI surveyed 461 British entrepreneurs. This study indicated that last quarter, their optimism increased at its fastest pace since the mid-2014. An increase in the local orders index was quoted by 37% of the companies and 21% quoted a decline. This gives us a positive 16% balance. Moreover, it is expected that the demand index will continue to grow in the forthcoming quarter.

However, the study also shows dangers, which seem to be ignored by companies. Approximately 25% of surveyed companies claimed that limited access to qualified workforce may be negative for the industrial production in the next quarter. The pound’s wear-off, which has been caused by Brexit, reflects in the production elements prices (the fastest growth in five years). Nevertheless, the weaker pound also increased competitiveness of companies in the international markets.

Rain Newton-Smith, the CBI senior economist, claimed that, “UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years.” However, he also warned that despite the fact that, “The weaker Pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers.”

After yesterday’s verdict from the British Supreme Court, Theresa May announced that she will publish the plan known as the white paper, in order to allow a proper debate regarding her strategy. Today, May said in the House of Commons that, “we’ll ensure Parliament has every opportunity to provide scrutiny.” At the same time, she agreed to publish the document which was demanded by the Labor Party, as well as at least six members of the Conservative Party (source: Reuters).

These two positive signals from the United Kingdom supported the pound’s appreciation. The GBP/USD remained near 1.26. However, the EUR/USD was slightly pushed from the 1.0770 level. The dollar’s index remained near the 100 points level.

The zloty is stable

Not much has changed on the zloty, which remained within a narrow range of 4.355-4.365 on the EUR/PLN. Due to a slight strengthening of the dollar, the USD/PLN reached the level of approximately 4.064. However, the PLN/HUF went above the 71 level this afternoon.

Tomorrow’s events

At 8.00, we will know the GfK consumer sentiment index for January. This index has been increasing since the mid-2008 and reached its highest level in fifteen years, in May 2015 (10.2 points). This result was achieved again in August 2016. However, the consumer sentiment index was slightly lower in the following months. The current market consensus is at the level of 10 points. Just as in the case of the Ifo business sentiment, the euro’s reaction should be limited. The euro remains under pressure of the mild monetary policy from the European Central Bank.

At 10.30 AM, the Office for National Statistics will publish the British GDP data for the fourth quarter of 2016. The market consensus is by 0.1 percentage points lower than the result for the third quarter and shows that the results will be 0.5% QoQ and 2.1% YoY. This may cause significant volatility on the pound.

At 2.30 PM, the American Bureau of Economic Analysis will publish the report regarding the trade balance for December. In November, deficit went down to the level of 65.3 billion dollars, which was approximately 4 billion more than expected. This was caused by increasing import and decreasing export. The market consensus shows that deficit should improve in December (negative 0.8 billion dollars MoM). The Labor Department will also present the weekly jobless claims data (estimates: 247k). Last week, this index was at the level of 234k, which was near its historical minimum from the beginning of November (233k). If the above mentioned data is significantly inconsistent with the consensus, this could cause fluctuations of the American currency.