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Afternoon analysis 30.10.2017

30 Oct 2017 15:18|Bartosz Grejner

US consumption and spending data that was slightly better than expectations have helped to sustain a relatively high dollar valuation (in the context of the recent days). The euro, on the other hand, has been slightly weaker after lower inflation readings from Europe's largest economy. Minor changes in the Polish currency.

Better data from the US, inflation from Germany below consensus

According to expectations, September's PCE inflation in the US, published by the Bureau of Economic Analysis (BEA), amounted to 1.3% in comparison to the corresponding period of the previous year. However, BEA data showed that Americans' private spending increased by 1% over the previous month, exceeding market estimates by 0.2 percentage points. This was their highest growth pace since March 2016.

Moreover, the real consumption exceeded expectations by 0.6% in comparison to August, which, as in the previous case, was the highest growth in 1.5 years. In turn, October's consumer inflation data (CPI) for Germany was lower than expected.

According to preliminary Destatis data, October's inflation amounted to 1.6% compared to October last year. This is 0.1 percentage points lower than market estimates and the lowest consumer price growth pace since June.

Just after the inflation data from the US, a gradual dollar appreciation could be observed. Worse than expected CPI index reading for Germany, in turn, weakened the euro, and as a result, the EUR/USD pair fell again to approx. 1.16. However, it should be noted that today's fluctuations are relatively limited. Around 9.00 a.m., a similar level of quotations was observed.

However, market participants are likely to be relatively cautious in the following hours and significant fluctuations are unlikely to be expected. In the next part of the week, the market will face events that may have a more significant impact on the dollar's quotations, but also on other currencies, e.g. statement after the meeting of the Federal Reserve's monetary committee (FOMC), possible election of its new President, labour market report.

Slightly stronger zloty

Today, the relatively small fluctuations in the currency market have been observed, which has also had an impact on the Polish zloty's behaviour. The Polish currency was relatively stronger in relation to the main currencies, except for the globally stronger pound. Also in relation to the local forint. Today, the zloty's valuation, expressed in forints, has grown to around the last four-month highs.

Tomorrow’s preliminary publication of the consumer inflation in October may turn out to be important for the zloty. If it was to remain high (consensus at 2.1%), this could suggest a higher probability of discussion on earlier monetary tightening in Poland. Ultimately, however, this week, external factors will most likely impact zloty valuation in relation to the main currencies to a greater extent.

Tomorrow's preview

At 11 a.m., Eurostat will present October's preliminary consumer inflation (CPI) data for the eurozone, as well as growth pace (GDP) in Q3. The market consensus assumes no changes in the inflation rate, i.e. the headline reading at the 1.5% level on an annual basis and 1.1% on a core index (excluding energy, food, alcohol and tobacco prices). The more important one - core index (which better reflects the underlying trend) has been in a relatively narrow range in recent months - from June to September it moved between 1.1% and 1.2%.

In turn, economic growth has gradually increased to reach 2.3% as compared to the corresponding period of the previous year. The median of expectations points to a further increase in the growth pace by 0.1 percentage points to 2.4%. Last Thursday, the European Central Bank announced an extension of the asset purchase program, which was halved until the end of September 2018, therefore, the impact of tomorrow's Eurostat publications may be limited by this fact.

However, if the inflation and GDP data deviate by 0.2 percentage points (or more) from the market consensus, the volatility on the euro's quotations could be increased as expectations for the continuation of the quantitative easing at the current level in 2018 could change somewhat.

At 3.00 p.m., the Conference Board will present consumer confidence index for October. Although this data is rather secondary in terms of its impact on the dollar, in the context of the dollar's fast appreciation and the absence of relevant events, a deviation from the consensus could also change the dollar's valuation slightly.

However, the probability of such a scenario seems to be limited - in the previous three months, the level of this index fluctuated between 119.8 and 120.4 points. Currently, the median of market expectations points to an increase in CB's consumer confidence index to 121 points, which would be the highest reading since March when it reached 17-year highs.


30 Oct 2017 15:18|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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