Daily analysis 03.01.2016

Positive PMI readings from China and the United Kingdom. Oil is at its year-and-a-half peaks. This may be unfavorable for some emerging markets. The EUR/PLN is trying to go below 4.40. The dollar is near its fifteen-year maximum.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 16.00: ISM for the American industry (estimations: 53.7).

PMI is significant, but...

Today, the industrial PMI data appeared to be positive yet again. According to Caixin and IHS Markit, the Chinese industrial PMI reached its highest level since January 2013 (51.9 points vs expected 50.9 points). Additionally, the production subindex increased at its fastest pace in seventy-one months. In their comments, entrepreneurs emphasized an increase in the local demand, as well as the lack of changes in export.

Another positive surprise was the British industrial PMI. This index was by 2.8 points higher than the consensus (53.3 points). Moreover, it reached its largest value in thirty months. CIPS and IHS Markit emphasized an increase of orders in local, as well as in foreign production. It’s also worth noting that not only production of consumer goods increased, but also production of investment goods.

However, we should focus on two other things. Primarily, the PMI data may overestimate the scale of changes. This is because surveyed entrepreneurs only mark whether the situation will improve, remain unchanged or deteriorate. However, this index does not estimate the scale of potential changes.

Secondly, we should refer the PMI to the current data. The British industrial processing has been decreasing for the third consecutive month in the Year over Year relation. Currently, this index is at the level of negative 0.4% YoY (the most recent data is from October). The PMI data may indicate its improvement. However, if this growth is only slightly above zero, its general contribution to the economy will be relatively minor. Therefore, we need at least a few strong PMI readings in order to state that condition of the industrial sector is actually improving.

Oil is increasing

The oil prices have been clearly increasing since morning. The Brent oil is at the level of 58 USD per barrel, which is its highest level in a year-and-a-half. The catalyst of this growth is the news that Kuwait (OPEC member) limited its mining by 130k barrels per day.

Oman confirmed its production limit as well (45k barrels per day) and this country is not the OPEC member. This goes to show that the OPEC countries, as well as the non-OPEC countries are fulfilling their obligations. This increases the likelihood of other countries keeping their words as well. Therefore, the actual production would actually decrease. In December, the IEA estimated that a complete fulfillment of the obligation will increase the oil demand will overcome the oil supply by 600k barrels per day during the first two quarters of 2017.

We should also take note that the prices (expressed in the USD) remain approximately 50% below their level between the year 2012 and the year 2014. However, due to the dollar’s growth, as well as decline of the emerging market currencies, the cost of oil is nearing this level.

The Brent oil is currently at the level of 250 PLN per barrel, while during the first quarter of 2016, it was at the level of 139 PLN. Moreover, this value is only 25% lower than it was in the break of 2013 and 2014. This situation is even worse when we will express the oil prices in the Turkish lira (210 TRY). This will have a negative impact on the Turkish foreign trade, because Turkey has a high current account deficit.

Zloty is relatively calm

The dollar’s strong growth is not negative for the general evaluation of the zloty, for the time being. The EUR/PLN is trying to go below 4.40. The franc is also stable, despite the anticipated wave of an increase in the American inflation expectations (higher oil prices), as well as the increasing likelihood of more restrictive monetary policy of the Fed.

Due to the dollar’s strong global appreciation, the USD/PLN is clearly higher than it was yesterday. It is worth focusing on today’s ISM data from the American industry. If this index increases for the fourth consecutive time and the level of 55 points is exceeded (consensus: 54.2 points), the EUR/USD may test the level of 1.0350 and the USD/PLN will go above the level of 4.25.