Afternoon analysis 30.05.2016

Inflation data from Germany should not have a significant impact on the ECB meeting. The Brexit risk may increase in the near future? The zloty remains fairly stable due to the absence of American and British investors. Final GDP reading for Q1 is scheduled for tomorrow.

Today’s session was fairly muted due to a lack of macroeconomic publications from the UK and the US. Only the inflation readings from Germany theoretically might have had more of a significant impact on tomorrow’s HICP euro zone inflation or the ECB’s meeting scheduled on Thursday.

But the EUR/USD hasn’t changed much after the publication. Currently, the incoming data should not have markedly changed the euro area MPC view on the policy if the data is within +/- 0.1 percentage point. The interest rate level will probably remain unchanged in the foreseeable future and no plans for QE modification are expected.

On the other hand, however, it is worth noting that services inflation rebounded from 0.8% y/y to 1.2% y/y. The recent moves were significantly disturbed by different dates for Easter Holidays, but the return to the trend can be encouraging that negative signals regarding wages are not expected. The German reading should also push the core HICP data for the whole euro area above the market consensus of 0.8% y/y. It is also possible that some upward revision will also be seen in the new ECB projections. This move, however, will rather be a result of higher oil prices than the strong estimates of the core. Overall, Draghi should remain rather dovish and any suggestions from reporters concerning some acceleration of inflation are expected to be dismissed.

Brexit risks underestimated. The zloty remains calm

The pound has enjoyed a strong rally after a telephone poll conducted by Ipsos Mori on May 16 where the remaining camp took an 18 percentage point lead, and the ORB data (May 22nd) where the EU supporters increased the lead to 20 percentage points.

But the Brexit risk may return quickly. The phone survey conducted by Survation on May 24th showed that the remaining camp only has a 7 percentage point lead and the result is worse by one point comparing to the Survation research finished a month ago.

Moreover the two most recent online surveys (YouGov and BMG) showed the draw and the single percentage point lead for the leave camp, respectively. When the ORB research leaves the 6-survey-average, the race is expected to get tighter again, which should have a negative impact on the pound.

Regarding the situation on the Polish currency - it hasn’t changed much since the late morning. Tomorrow, the GUS is scheduled to publish the final GDP reading for Q1. Economists are expected to look for the reasons behind the significant slowdown at the beginning of the year. But, it should have a limited impact regarding the FX market. The most recent production and retail sales data was fairly strong, so the Q1 reading was rather a short term under-performance of the Polish economy, rather than a beginning of a sustained negative trend.