Afternoon analysis 27.07.2016

The British data is weak, but some values may be misleading. Low readings about orders for durable goods from the USA. The zloty worked-off a portion of its losses.

Today, the market received the GDP readings from the British economy, as well as the Confederation of British Industry (CBI) publication regarding retail sales. The CBI surveyed 132 enterprises and 66 of them deal with retail sales. In general, the transaction volume decreased in July to its lowest level since January 2012.

The component regarding orders was even worse. Only 9% of salesmen claimed that they increased the amount of orders in comparison to the same period of the past year and 42% said that the demand was reduced (the worst result since September 2009). The CBI claims that a further decrease in orders is expected in August.

However, the data alone is not as fatal as the indexes indicate. The CBI writes that a decrease in retail sales in grocery stores had an impact on the generally lower sales volume. However, it's difficult to expect that Brits would start to eat or drink less because of Brexit. Whenever citizens of the developed countries have doubts regarding their future finance, they limit their visits in restaurants rather than in grocery stores.

On the other hand, the shoe sector as well as leather products sector quoted a higher sales volume. This also denies the theory that Brits are preparing for a serious tightening of a belt. We also need to keep in mind that the British economy has currently a full employment level. Thus, it will take significantly more data in order to estimate is Brexit actually negative in the long-term, or are we dealing with a short-term disturbance in sales.

However, this data is negative or at least neutral regarding the pound. It seems unlikely that the Bank of England would consider them as positive. Moreover, taking into consideration other surveys, the risk of a more aggressive monetary easing is increasing.

Orders from USA. Zloty is working-off losses

Looking at orders for durable goods in the USA, there is not much positive information, except for an increase in demand for cars. Even if some low readings are partially caused by a decrease in prices of industrial metals, the orders for investment goods are simply weak (in the month on month, as well as the year on year readings). With exclusion of planes, they decreased by 3.8% y/y and the m/m increase was only 0.2%.

In general, the new orders depreciated by 4% m/m and remained at the unchanged level in the year on year relation. This information is not positive shortly before the Federal Reserve meeting, even though the market definitely prefers to focus on condition of consumers, rather than producers. As a result, the EUR/USD remained near the 1.10 level, but this data does not bring the FOMC closer to the monetary tightening.

The zloty worked-off approximately a half of its morning losses. The EUR/PLN is currently near the level of 4.37. It seems that our previous diagnosis regarding too large nervousness on the Polish currency is beginning to confirm. If the global situation does not change significantly, the EUR/PLN should return to the levels that were observed during the past few days.