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Afternoon analysis 28.11.2016

28 Nov 2016 16:42|Bartosz Grejner

Brexit divided politicians in the United Kingdom. Meanwhile, OECD announced that Brexit’s impact on the British economy will not be as large as expected. No larger changes on the Polish currency. However, the increasing dollar caused the zloty to give back its gains from this morning.

Is Brexit not as ominous as it seems?

OECD revised the British GDP growth from 1.8% to 2% for 2016 and from 1% to 1.2% for 2017. Moreover, the organization claims that unpredictability of Brexit may be one of the largest hazards for the British economy. This could cause a deterioration of local and foreign investments. Combined with the weak pound, this could increase the stagflation level.

Higher British inflation may translate to consumption level. OECD forecasts that inflation will increase by 2.4% in 2017 and by 3% in 2018. The Bank of England’s inflation target is at the level of 2%. However, this institution announced that it will tolerate higher inflation. Even though it remains unclear how Brexit will look like, we assume that its reasonable process combined with sustaining positive relations between the UK and the EU, should support the British economic growth.

The Sunday Times informs that the BoE chairman, Mark Carney, said that the British companies need time to adjust to Brexit. This means that there is a need for remaining in the common market for at least two years after officially leaving the EU. This opinion has not been received positively by the most hardcore Brexit supporters.

One of such supporters is Michael Gove, a member of the Conservative Party. In his interview with BBC, he claimed that, “not everybody seem to come to terms with the fact that the Brits voted in favor of leaving the European Union. Moreover, the Brits want this to happen as soon as possible.” This is why Gove wants Brexit to be as clear and simple as possible.

The solution that Carney mentioned about, would be received positively by the British companies and would support the pound. On the other hand, uncertainty regarding Brexit within the United Kingdom may cause the British currency to wear-off. Today, the pound lost more than 0.5% against the dollar and went down from 1.25 to 1.24.

Zloty gives back its gains

Since the election of the new American president, the zloty has been reacting mostly to the moves on the dollar. Recently the dollar index went below 101 and the EUR/USD went above 1.06. This caused the zloty to strengthen. This morning, the dollar was at the level of 4.14, the franc went down to 4.10 and the euro reached the level of 4.41.

An increase in the dollar index (above 101.5) and the return of the EUR/USD above 1.06 have caused the zloty to give away the majority of its gains. Moreover, the zloty started losing against the dollar. This afternoon, the euro and the franc were 0.01-0.02 PLN higher and the dollar reached the level of 4.18 PLN.

Tomorrow’s events

At 2.00 PM, Destatis will publish the second reading regarding the German CPI for October. German inflation was at a negative level in May (negative 0.1% YoY). However, it managed to reach the level of positive 0.8% YoY in September. Initial reading from October (published on November 11th) indicated its similar growth. Even though inflation goal remains relatively far away (2%), gradually increasing inflation is a positive sign for the German economy. Previous data regarding industry, services, consumer sentiment and entrepreneur sentiment, seemed to confirm an upper trend. If inflation is increasingly closer to inflation goal, this would support theeconomic growth. This is a positive information for the euro, as well as for the zloty. This is because Germany is Poland’s main economic partner. The market expects that CPI growth will remain unchanged in Year over Year interpretation. However, it will be at the level of 0.2% MoM.

At 2.30 PM, the Bureau of Economic Analysis will publish the second reading regarding the American GDP growth for the third quarter. The initial data (October 28th) indicated a 2.9% QoQ growth, which was the largest QoQ growth since the second quarter of 2015. The market consensus assumes a 3% growth. Inflation expectations have changed since the election of the new American president. This caused a relatively large increase in profitability of the American treasury bonds, as well as appreciation of the dollar. These moves result in volatility in the global markets. This is why significant deflections in tomorrow’s data may impact evaluation of bonds and currencies worldwide.

Thirty minutes after the start of the New York stock market, Conference Board will publish consumer trust index for November. After two consecutive growths (August, September), this index decreased in October below 100 (from 103.5 to 98.6). However, we need to keep in mind that this index remains at a relatively high level. Currently, it’s near the level from before the 2007/2008 financial crisis (approximately 110). The market expects this index to be at the level of 101.3. This would be the third time this year that this index went above the 100 level. A relatively high level of this index is positive for the economy, as well as for the dollar. This is because this index is significant for the majority of the GDP.


28 Nov 2016 16:42|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.

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