Afternoon analysis 28.12.2016

Good data from the Japanese economy: industrial production in November rose fastest since July, albeit slightly below expectations. Retail sales, on the other hand, increased more than expected. The dollar fell below 1.04 level on the EUR/USD pair for the first time in a week – this also indirectly (negatively) impacts the Polish currency.

Limited impact of the positive data

The Japanese Ministry of Economy, Trade and Industry said on Wednesday that industrial production increased by 1.5% MoM which was slightly below the expected 1.6%. However, it’s the highest growth rate observed since July. The growth was 4.6% when compared to November 2015. General purpose, production and business oriented machinery and transport equipment were the sectors that contributed the most to the overall growth. On the other hand, production in ceramics, stone and clay products and plastic products fell the most in November.

The November 1.7% YoY increase in retails sales is worth mentioning as well, as it turned out to be above market consensus of 0.9%. It’s the first increase in retails sales since February and only the second this year. Sales of motor vehicles increased the most – it was the fourth month of growth in a row. In contrast, fuel sales fell by 0.7% YoY. That was the 22nd consecutive month of declines, however, the decrease reported in November was the smallest in this period.

The data mentioned above had limited impact on the yen. It was mostly under pressure from the dollar. The EUR/USD pair was below 1.04 level for the first time in a week – the appreciating American currency caused also an increase in the USD/JPY exchange rate to 117.8. The relation of the pound sterling to the dollar fell to the lowest level since 31st October. As a result, the dollar index (DXY) noticeably increased to 103.5, close to the last week’s peak.

The Turkish lira was once again very weak today – its value in relation to the dollar fell below the historically low closing price from the beginning of December. Today’s strong dollar was accompanied by increasing yields on U.S. government bonds – 2-years’ yield were almost 1.3%, whereas their German counterparts were at -0.81%.

Złoty weaker – yet another failed attempt of bringing EUR/PLN below 4.40

For eight days in a row, the EUR/PLN pair tried and failed to go below the 4.40 level. The Polish currency was visibly weaker today – a better condition of the dollar didn’t help either. Around 4 p.m. the euro cost 4.41 zł and the dollar 4.24 zł – that was the highest price since 23rd of December. Złoty’s inner weakness was underlined by its relation to the Hungarian forint – it remained only slightly above the 70 level and close to 3-year lows. The volatility in the PLN trade could increase in January as there are several key events scheduled – Fitch and Moody’s rating reviews among them.

Tomorrow’s preview

At 2.30 p.m. the U.S. Department of Labour will publish a report on the level of initial jobless claims in the previous week. Their number fell to record lows (233k) at the beginning of November. However, it increased in the next few weeks and was at 275k the previous time. Even though it was the highest level since June, the jobless claims are still close to historic lows. It’s worth noting that it was the 94th consecutive week of jobless claims below 300k. The median of expectations points to a reading of 264k claims in tomorrow’s report, close to a 4-week average of 263.75k.

The Bureau of Economic Analysis will publish data regarding the goods trade balance in November. It fell in October to the lowest level since June. The deficit reached 61.99 bn dollars, mainly due to a drop in exports (which grew a month earlier) while imports picked up. The current consensus points to a slight improvement in the deficit to -61.5 bn dollars. In the context of (thin) holiday trading and lack of other important events, the aforementioned data could cause more volatility in the dollar and indirectly to other currencies, as well.

At 5 p.m. EIA will publish the U.S. petroleum report. The markets focus particularly on the crude oil inventories and production data. Two weeks ago the production increased by 99k barrels a day, however, in last week’s report, it was said to decrease by 10k b/d. Crude oil stock increased by 2.3 mn barrels. The market expects this week’s report to show a decline of 1.5 mn barrels. The price of oil increased by over 20% during the last month. Beginning on 1st January, the agreement regarding production cuts will come into effect – some countries reported compliance even now. The market price of oil increased greatly in anticipation of the aforementioned cuts. Hence, should the data miss expectations, one could expect more volatility in the price of the “black gold”.