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Mixed data from the eurozone - weak production in Germany and slightly better GDP from the eurozone did not help the EUR/USD pair. Is there any hope for an agreement on the Brexit case? The zloty remained stable around midday, but domestic political events may increase fluctuations on the PLN.
The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.
EUR without support
Data on industrial production from Germany, published at the beginning of the European session, showed that the economic condition of our western neighbour may have deteriorated at the beginning of the Q4. After retail sales, which fell by 1.6% YOY in October, today, Destatis announced that industrial production growth slowed down from 4.1% YOY in September to 2.7% YOY in October.
Among the components, both the construction production (month-on-month decrease by about 1.5%) and manufacturing production (by 2.5% month-on-month) were worse than expected. In monthly terms, the overall decline in production has been the strongest since the end of 2016. For the time being, it is too early to draw conclusions about a more pronounced slowdown in the Q4, but production and sales data may suggest that the peak of the German economic cycle may already be already behind us.
Eurostat's final publication on GDP growth in the Q3 was better than consensus. It amounted to 2.6% YOY for the entire single currency area, with a 2.5% YOY consensus. Individual components also show a relatively balanced growth, with consumer spending rising by 1.9% YOY, the public sector growing by 1.1% YOY, and investment at 4.2% YOY level. On the other hand, both import and export have increased by about 5%. However, this data is already largely historical in nature and the market is likely to see more monthly publications from key eurozone countries in the coming weeks. Therefore, the balance of today's morning readings, due to the surprisingly weak condition of German industrial production, should rather be considered as negative.
Is there any hope for an agreement on the Brexit case?
Yesterday, we pointed out that the deadlock on the Brexit issue could be postponed. In the evening, the media started to report (e.g. Bloomberg) that Prime Minister May had a two-hour conversation with Arlene Foster, President of the Northern Ireland Democratic Unionist Party (DUP).
The British Prime Minister also spoke to her counterpart in the Republic of Ireland, Leo Varadkarem. A new proposal on the status of the border between the interested parties is likely to be presented today. Of course, it is difficult to see clearly what the solution will be because if the United Kingdom decides to stop the free movement of people and goods, the' hard border' will be visible in some places. If this is not the case between Northern Ireland and Ireland, then between Northern Ireland and the continental part of the United Kingdom (which, of course, DUP does not want to agree on).
The lack of a real borderline between all the parties concerned would practically mean a denial of Brexit's idea, which is opposed by conservative party' leaders (Michael Gove Secretary of State for Environment, Food and Rural Affairs and Boris Johnson Secretary of State for Foreign and Commonwealth Affairs ). Presenting a compromise may therefore not only mean an acceleration of the "divorce agreement", but also create an arrangement within the conservative party and its migration towards a generally "soft Brexit". So it would be good news for the pound. On the other hand, a lack of presentation of a concrete proposal in the coming hours would mean continued disagreement between sides, as well as increased speculation on the possibility of early elections to the British House of Commons. This is a negative signal for the pound.
Stable zloty
The situation on the zloty remained calm. It seems that in the current EUR/PLN quotation in the range 4.21-4.22 the dovish Tuesday's message from the MPC was already calculated. Also, when looking at the behaviour of the US markets or the US Treasury bonds, signals for the PLN are rather neutral.
In the afternoon, however, it is worth paying attention to political events in the country. Their scale may be large enough to cause greater volatility on the zloty. Besides, of course, the global sentiment, and especially the dependencies of the bond and share market in the US will be important all the time. Growth on US trading floors with small changes on yields of Treasury instruments should support the PLN. In general, however, the risk of stronger movements in the United States may be limited due to the Labor Department's November report on changes in employment, wages and unemployment which will be published on Friday. Therefore, the core scenario is that the EUR/PLN will remain close to current values.
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See also:
Afternoon analysis 06.12.2017
Daily analysis 06.12.2017
Afternoon analysis 05.12.2017
Daily analysis 05.12.2017
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