Chinese export slows down (Afternoon analysis 14.01.2018)

Incoming macroeconomic data increasingly points to a global economic slowdown. The UK government is considering its support for the introduction of a backstop deadline, but this is unlikely to help Prime Minister Theresa May win Tuesday's vote on Brexit plan. The zloty is stable and supported by a lower than expected current account deficit.

Limited fluctuation range on the currency market

The week did not start with positive macroeconomic data. The slowdown in the global economy, which is expected and awaited more and more, is starting to materialise in hard data. Industrial production in the eurozone fell by 3.3% y/y in November, the strongest in six years. It is not only Europe that is experiencing problems. Although China's published budget deficit turned out to be much higher than expected (57 billion against a consensus of 51.5 billion USD), this was only because the fall in imports was much greater than exports, while in both cases growths were expected.

What is particularly worrying is the biggest drop in exports in two years in December by 4.4% per year. Fears of a global decline in demand are therefore being addressed, which will have a negative impact on economic growth in the coming months. Today, however, euro quotations are stable and volatility is limited. Weak data from the eurozone is somewhat balanced by the government shutdown in the US, which has lasted more than three weeks, and by the FOMC's approach to raising interest rates, which is more dovish than before. Therefore, data coming from the US economy will also be important. Currently, it does not indicate a similar slowdown to the European one. If the federal institutions begin to function normally and the incoming macroeconomic data from the USA (labour market, inflation, GDP) is solid, the dollar may return to the appreciation path in the coming months.

Slightly greater fluctuations occur in the pound. However, they may be completely irrelevant to tomorrow's vote in the British Parliament. The price of the British currency remained around 1.285 USD. In the afternoon, Bloomberg reported that Prime Minister Theresa May's government was considering supporting an amendment to its plan, which would introduce a 31/12/2021 backstop in the EU's agreement on the Irish border. This would help to get more votes in favour of May, but the chances that the plan will go through in parliament are still negligible.

The beginning of the week was relatively calm for the Polish currency. The zloty was slightly weaker until midday, but after the start of the New York session, it pared small losses. However, quotations in relation to the main currencies oscillated around the closing levels on Friday. The Polish Central Statistical Office (GUS) published today data on Poland's current account in November. The deficit amounted to 221 million EUR and turned out to be 223 million lower than the market consensus. This is the fourth consecutive month of a decrease in the deficit on this account and at the same time its lowest level since May 2018. This may slightly support the Polish currency. The EUR/PLN quotations fell even slightly below 4.29 in the afternoon. In the long run, negative data from the eurozone, as well as that potentially negative and indicative of the progressing economic slowdown, may translate into a weakening of the zloty.

Tomorrow's preview

The most important event on Tuesday evening will be the vote in the British Parliament on the Brexit plan. The fact that Prime Minister Theresa May will not get the required votes is practically a foregone conclusion. What matters is how many votes will be lost. With a devastating defeat, we can even expect a vote of no confidence in the May government, as Jeremy Corbyn, President of the Labour Party, has also announced. The most important thing for the market at the moment seems to be that the risk of a chaotic Brexit has decreased. The probability of an 8% fall in British GDP or a 25% depreciation of the pound seems to be lower. These expectations are already reflected in the higher valuation of the pound, which today reached its highest level in relation to the dollar since November 23rd last year. The ratings of the British currency will continue to fluctuate significantly, especially tomorrow around the publication of the results of the vote.