Afternoon analysis 26.10.2016

Consumer trust in Germany was lower than expected. However, this index is still at a high level. The American PMI services sector data was better than expected. The zloty is slightly below its level from the morning.

Lower estimates for income and purchases in November

The German consumer trust index for November was at the level of 9.7 against 10.0 the month before. This was this index’s worst reading since April. Two out of three components of this index went down against their results from the previous month. Expectations regarding the future income have been going down by 7.8 points in two consecutive months, to the level of 44.8, which is its lowest level since November 2015. Despite this decline, this is still a high level of optimism regarding the future income. A decrease in this level is probably caused by the fact that consumers are foreseeing the end of a positive impact of low oil prices on prices of goods and services (inflation increased by 0.7% in September, while it increased 0.4% in July and in August.)

The mentioned decrease in income estimates had an impact on tendencies to purchasing for November. This component decreased by 3.4 points (49.9). Additionally, according to GfK, this overlapped with an increase in tendencies to save money, which had its contribution to the final result. Just like in the case of the previous component (despite its decline), tendencies to purchasing index for November remains at a high level.

The only component that went up were economic expectations. This index increased by 6.2 points (13). Over the past three months, we were observing a decrease in economic expectations, which was a result of Brexit-related deterioration in economic sentiment. However, German consumers have probably reconciled to Brexit, which could increase the expectations. Moreover, the German government increase its forecast regarding economic growth in October. This could also be positive for consumer expectations.

A slight deterioration of consumer trust index in Germany probably wasn’t caused by internal factors (the recent data was showing a relatively positive condition of the German economy.) The reason for this was increasingly difficult external trade environment, as well as a weak global pace of economic growth. However, external foundations remain at a positive level, which is positive for the Polish economy as well. This is because Germany is one of Poland’s most important business partners.

American PMI for services is better than expected

At 15.45 (3.45 PM), Markit published the PMI data for the American economy. The reading appeared to be higher than last month (54.8 vs 52.3), as well as than the consensus. This was also its highest level since November 2015. Moreover, the Markit report states that services providers are quoting the highest level of business cycle optimism since August 2015. New orders index increase for the first time in three months. Its pace was at the highest level since November 2015.

“The result of October’s survey contains positive signs for growth in the forthcoming period. Moreover, the month on month increase of this index appeared to be one of the highest in two years,” commented Tim Moore of IHS Markit.

Zloty is losing in the afternoon

The Polish currency lost some of its gains against the main currencies. However, the differences are not large in comparison to the morning quotations. The zloty lost the most against the euro (4.33 vs 4.31 this morning). Even though an increase in the EUR/PLN was mainly caused by a stronger euro, we were observing a wear-off of the zloty against the majority of currencies in the afternoon.

Tomorrow’s events

At 10.30, The Office of National Statistics will publish the data regarding the GDP growth in the third quarter. The market consensus assumes a 0.3% m/m increase (vs 0.7% m/m last month) and a 2.1% y/y increase (no changes). The British currency is significantly volatile due to the Brexit. Therefore, the appearing data may cause significant changes in the pound’s value in the short-term. If the data is slightly better, it could strengthen the pound. Investors will focus on this reading, because it shows the situation after the Brexit referendum.

One hour before the New York stock market opening, the American Labor department will publish the data regarding jobless claims from last week. The market expects this index to be at the level of 255k, against 260k last week. Even though last week’s reading was worse than expected, we are still experiencing a depreciation trend. Moreover, the current level, as well as the four-week average is near the forty-year minimum. Therefore, we shouldn’t expect large deflections from the consensus, as well as from the previous readings. This should be relatively positive for the dollar.

At 14.30 (2.30 PM), the Census Bureau will publish the data regarding durable goods for September. Last month, the base case reading (excluding transport) was at the level of negative 0.4% m/m. The market consensus estimates that the result will by 0.2% better than it was in August. The level of orders above zero proves an increase in activity in industrial processing. Therefore, this should be positive for the dollar.