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Afternoon analysis 27.01.2017

27 Jan 2017 16:14|Bartosz Grejner

U.S. GDP growth rate in Q4 was below expectations. Net export was the culprit. The Polish currency was without major changes after the publication of the US GDP data.

Preliminary reading below expectations

The Bureau of Economic Analysis said that the Q4 GDP growth rate was at 1.9% QoQ in a report. This was 0.3 percentage points below the market consensus and 1.6 percentage points below the final reading for Q3. Export fell by 4.3% in the last quarter, which constituted the biggest drop since Q1 2015. At the same time, import grew by 8.3%, which was the highest growth rate in two years. This happened to be the main reason why the Q4 GDP growth rate missed expectations.

As a result, the contribution of the net export to the overall GDP growth was at -1.7%, while it had been positive in the previous quarters of 2016. In turn, gross private domestic investment level surprised on the upside with a growth of 10.7% This translated into a 1.67% contribution to the GDP growth, from which the increase in private inventories contributed 1 percentage point. It was the most significant addition of inventories to the GDP since Q1 2015 (when it was 1.01%).

Apart from the GDP data, the Census Bureau released a report regarding durable goods orders in December. It said that orders for durable goods decreased by 0.4% MoM while a 2.6% was expected. However, excluding new orders for transportation equipment, the core index rose in line with the market consensus by 0.5%. New orders for transportation equipment alone fell by 2.2% MoM.

The dollar’s initial reaction was somewhat limited. The main pair (EUR/USD) increased from 1.069 (before the data) to 1.071. The dollar-to-yen relation held at the 115 level as well. Today’s data from the US economy, while slightly below expectations, probably won’t have any major lasting impact on worsening the market sentiment (in the long run). Firstly, it was only a preliminary reading and there will be three of them in total. The Q3 GDP growth rate had been revised two times (ultimately by 0.6 percentage points).

Secondly, as was mentioned above, the lower growth rate was caused mainly by the particularly weak net export data which will (most probably) considerably improve under the reign of the new US President. We’re expecting the dollar to then continue to appreciate in the long run, although it’s possible that it could somewhat weaken in the next few as a result of today’s data. Let’s not forget that we’ll get the FOMC statement on Wednesday, and considering that the Committee signalled three possible rate hikes in 2017, the statement in question could prove relatively hawkish and support the dollar.

Zloty stable in light of the US data

The US data had a limited impact on the Polish currency overall. The EUR/PLN pair remained still slightly under 4.34, CHF/PLN oscillated around the 4.06 level and GBP/PLN oscillated around the 5.10 level. As we mentioned in our analysis at mid-day, the reaction to the US GDP data was limited - mainly to the zloty’s relation to the dollar. The USD/PLN pair fell even below 4.05 for a moment, coming close to over two months’ lows. The next week in the case of the zloty could prove important, as we’ve been observing a consolidation in trading in a narrow range of fluctuations. On Tuesday, we’ll learn of Poland’s GDP growth in 2016 and on Wednesday the Federal Reserve will publish the statement after the FOMC meeting - which could impact the zloty’s whole basket.

Next week’s events

On Monday at 14:00, Destatis will publish the German CPI for January. In December, this index increased 1.7% YoY. This result was a result of an increase in the raw material prices (oil, in particular). Taking into consideration that their rapid growth has stopped recently, the CPI index should quote minor changes. The market consensus is at the level of 2% YoY and negative 0.6% MoM.

At 15:00, the Bureau of Economic Analysis (BEA) will publish the American PCE report for December. This data is significant because the Federal Reserve uses them in their forecasts. Therefore, they may impact the schedule of this year’s rate hikes. Even though the PCE inflation has been in the upper trend since the end of 2015, its value decreased slightly in November in comparison to October (1.6% YoY vs. 1.8% YoY). If the result for December is significantly different than the result for November, we may expect significant fluctuations on the dollar. However, the dollar’s depreciation potential seems to be limited by the policy from the new American administration.

On Tuesday at 10:00, the Polish Central Statistical Office (GUS) will publish the data regarding the Polish GDP growth. Over the past few days, we have been observing a positive condition of the zloty, especially on the EUR/PLN. The market consensus for the Polish GDP is at the level of 2.7% YoY (3.9% YoY in 2015). If its result is better than expected, the EUR/PLN may be pushed towards 4.30. The alternative scenario should cause its decrease up to 4.40.

At 11:00, Eurostat will present the initial data regarding the euro zone’s GDP growth for the fourth quarter and the CPI for January. Just like in the case of the German economy, the euro zone’s CPI is mainly fueled by oil price growth. Over the past few quarters, the euro zone’s economic growth has been circulating around the level of 1.6% YoY. Therefore, we should expect large dissonances. Even if the data is better than expected, this may have a limited impact on the euro, which remains weak due to the mild monetary policy from the European Central Bank.

On Wednesday, we will know the decision from the FOMC regarding the American interest rates. The likelihood for rate hikes during this meeting is estimated to be approximately 4% (calculations based on the Fed rate contracts). Therefore, we can’t expect that the Committee will change their mind. However, the FOMC announcement may suggest when we can expect rate hikes. The dollar should be relatively volatile during this meeting. Nevertheless, we need to keep in mind that only the announcements of new details of the new American administration’s economic policy may cause significant fluctuations on the USD.


27 Jan 2017 16:14|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:

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