Afternoon analysis 29.09.2016

Positive data regarding loans support the British economy. Jobless claims from the USA remain near its 40-year minimum. The Polish currency is weakened by Moody’s.

Market of individual mortgage loans is resistant to Brexit

Positive data from the Bank of England confirm that the British economy is relatively resistant to Brexit. After a weaker than expected value of consumer loans from July (1.18 billion pounds), it has returned to the area from before the referendum (1.57 billion pounds in August).

The data regarding mortgage loans from June was also better (2.9 billion pounds). The results of net loans for individual customers were better as well (4.5 billion pounds). In both cases, the indexes have returned to their levels from May. However, the amount of approved mortgage loan applications deteriorated from 60.92k in July to 60.06 in August (this was barely 9k less than the market consensus.) A similar trend can be observed since the beginning of the year and it reflects (to a lesser degree) in lower values of loans. In this case, however, this trend is not as clear.

American GDP is going up and jobless claims are going down

At 14.30 (2.30 PM), the Bureau of Economic Analyses revised up the GDP growth from 1.1% to 1.4% (against the 1.3% consensus). This increase in the second quarter was a result of individual consumer expenses, export and foreign investments. However, a positive effect of these factors was limited by increased government expenses (local and national), as well as increasing import.

Even though the amount of jobless claims increased by 3k (to 254k) in comparison to last week, the reading has been better than the market consensus (260k). Over the past few weeks, this index has been near its 40-year minimum. As a result of this positive data, the dollar strengthened against the euro and the EUR/USD was testing the 1.12 level. This goes to show that the American economy is gradually improving and it may be ready for rate hikes at the FOMC meeting in December.

Zloty is slightly losing

Just as we mentioned in today’s daily analysis, the zloty became weaker due to the announcement from Moody’s, as well as the negative revision of the GDP growth. The zloty lost against the majority of currencies during the second part of the day. For a short time, the EUR/PLN was above the 4.31 level and the GBP/PLN exceeded the 5.00 level. However, we don’t expect a larger depreciation of the Polish currency. This could only be caused by a worse global sentiment, as well as an increase in risk aversion (which concerns the emerging market currencies).

Tomorrow’s events

Tonight, we will know the Chinese industrial PMI data from September, which was prepared by the Markit institute. Previous two readings were at the level of 50.6 and 50, respectively. Before that, we were receiving readings which were below 50 points since March 2015. The condition of the Chinese economy has a significant impact on growth of the global economy. Therefore, the PMI readings which are below 50 cause anxieties in the markets, as well as an increase in risk aversion. The consensus assumes a marginal increase to the 50.1 level.

At 10.30 AM, we will receive the British data regarding enterprise investments, the GDP growth and foreign trade balance for the second quarter. The market expects the two first indexes to remain unchanged. However, foreign trade balance is estimated to improve by 2.1 billion pounds. Worse trade balance would cause a larger inflation pressure, as well as depreciation of the pound. This could result in deterioration of the British economy.

Tomorrow, we will also know important data regarding inflation of the euro zone and the USA. Both of these readings are significant for the monetary policy. The European Central Bank introduced negative interest rates this year and currently it conducts the economy stimulation program. Its purpose is to take inflation closer to its target (2%). The market consensus assumes an increase in the CPI base case inflation in September, at the level of 0.4% (previously 0.2%). This is becoming more likely, because today’s CPI inflation data from Germany was better than expected (0.1% vs 0% in August).

On the other hand, the American PCE is significant, because the Federal Reserve takes it into consideration in its forecasts. The CPI inflation data was better than expected before the Fed’s meeting on September 21st. Therefore, positive PCE inflation data would give investors a better view regarding the Fed’s potential decisions in December.