Afternoon analysis 30.09.2016

The data from the Bureau of Economic Analyses regarding the PCE inflation confirms a positive CPI inflation reading from mid-September. The Polish currency is clearly weaker in the second half of the day.

PCE inflation is consistent with consensus

The CPI inflation from mid-September was better than expected (positive 2.3% y/y), due to an increase in medical services (positive 5.1% y/y). The PCE base case inflation reading by the Bureau of Economic Analyses (BEA) today, confirmed that inflation in the American economy is positive. This data is even more significant, because the Federal Reserve is taking the PCE inflation into consideration in their forecasts.

Despite positive PCE inflation data (it increases the chances for rate hikes in the USA at the end of the year), the dollar lost value. This may be a result of a weaker than expected individual expenses reading, which remained unchanged in comparison to last month (consensus: positive 0.1%; last month: positive 0.4%), as well as an increase in savings. Individual savings increased to 808 billion USD in August, against 782 billion USD in July. This means that savings growth rates increased for the second month in a row and are at the level of 5.7%.

The zloty wear-off and economic data doesn’t impact its exchange rate

External factors that we have mentioned in today’s daily analysis continue to impact the zloty negatively. In the meantime, we received the Eurostat data regarding unemployment. It went down from 6% in July to 5.9% in August (8.6% in the entire EU and 10.1% in the euro zone). At 14.00 (2.00 PM) we also received the readings from the Polish Central Statistical office (GUS), regarding inflation in September. This reading was based on an experimental rapid estimation. Inflation remained unchanged in comparison to the past month (estimations: positive 0.1%) and it decreased by 0.5% in year on year relation (estimations: negative 0.4%).

However, this data had no clear impact on the zloty. The Polish currency continued its depreciation and reached the level of 4.32 against the euro. However, it loses the most against the dollar (approximately 0.9%). The USD/PLN was at its lowest level since the Federal Reserve meeting on September 21st (3.87).

However, the American data which was published at 14.30 (2.30 PM), caused the USD/PLN to decrease to the 3.84 level. An improvement of the global sentiment at approximately 15.00 (3.00 PM) also caused growths on Wall Street, growths on the European indexes and a decrease in risk aversion. As a result, the emerging market currencies (including the zloty) strengthened. The EUR/PLN returned to the 4.30 level and the franc is worth 3.95 PLN.

Markets on Monday

Next Monday, we will know the last industrial PMI from September for the European countries, prepared by the Markit agency. At 9.00 AM, we will receive the PMI from Poland. The market consensus assumes an increase from 51.5 points in August to 52 points in September. This would be the largest value of this index since May.

A reading which is consistent with the market expectations would be positive information for the zloty. Appreciation of the Polish currency has recently been stopped by negative announcements from Moody’s (negative impact of sales tax on the budget deficit, as well as a decrease in the GDP growth for 2016 and 2017), as well as a larger global risk aversion that strikes the emerging market currencies. However, we need to keep in mind that the PMI readings for the Polish industry have been decreasing since the beginning of 2015.

At 10.30 AM, we will know the industrial PMI data from the United Kingdom. It’s expected to decrease in comparison to August (53.3 vs 52.1). It’s worth noticing that four out of six previous readings were below 50 points, which means that the industrial sector is shrinking. Despite the recent high result (53.3 vs the estimated 49), the trend from the beginning of 2014 indicates a gradual reduction of the PMI data for industry.

At 15.45 (3.45 PM), we will receive the ISM industrial index for the American economy. Taking into consideration the recent data which was suggesting a decrease in activity of the American industry (49.4 points), it seems that investors will focus on this reading. The market consensus assumes its growth to the level of 50.5 points. However, according to the American industrial PMI data which was published by Markit last week, this index went down from 52 to 51.4. This may suggest that the ISM index doesn’t necessarily have to be consistent with the market consensus.