Daily analysis 10.08.2017

10.08.2017 12:23|Marcin Lipka

Still, geopolitical issues have continued to dominate the markets, however, the unexpected leaders in currency appreciation have been the Chinese yuan and the Russian ruble. The UK's production has been higher, but on the pound may exert downward pressure. The zloty has been in second place among the weakest currencies in the world. The EUR/PLN pair has been on new, over 3-month peaks.

Macro key data (CET time- Central-European). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 2.30 p.m.: Weekly readings on new initial jobless claims in the USA (estimates: 240k),
  • 2.30 p.m.: Producer inflation (PPI) in the USA (estimates: 0.1 MOM excluding fuels and food 0.2% MOM),
  • 4.00 p.m.: William Dudley's speech from the Federal Reserve.

Ruble and yuan as the largest beneficiary

Trade in the forex has still been under an atmosphere of increased volatility in the exchange markets. The higher value of a franc has been the natural result of increased geopolitical risk. Investors should not be surprised by the strengthening of the yen, even though Japan has been relatively close to the Korean Peninsula. Whereas, it may be interesting that in the last 5 days the strongest currencies of the developed and emerging countries have been the yuan (CNY) and the ruble (RUB). They have gained exactly the same amount as the dollar, which has been less than 0.9 percent.

Both, the Russian and the Chinese currency, have been growing in relation to the franc or the yen (approx. 0.5%) and to the zloty (2.7%), that have been placed second from the end among the 31 currencies of emerging and developed countries. What could have caused such a good condition of the CNY or the RUB?

In the case of China, attention can be drawn to the relatively good macroeconomic data. Better than expected results from July's PMI readings, foreign exchange reserves have risen above consensus, and trade surplus has reached almost $47 billion last month. In the case of Russia, there have been fewer economic reasons. PMI for the industrial production has been above expectations, but for services has clearly dropped. The foreign exchange reserves have increased, but inflation has been below estimates. Rising oil price quotes could support the ruble, but not in such an extent to have such a strong appreciation in a rather turbulent external environment.

It is not impossible, that for the market much more important than macro data has been another element. On Saturday, the UN Security Council unanimously imposed sanctions on North Korea. No opposition from Moscow or Beijing could be perceived by the market as part of a broader cooperation from China or Russia, which in the longer term may also improve the position of these countries on the international economic scene.

Mixed expectations from Great Britain

In the morning, important readings from the United Kingdom have come. Industrial production in the Isles has increased by 0.3% YOY, with expectations at minus 0.1% YOY. This information can theoretically be taken positively in the context of the pound, but the data has been supported by a good performance of the mining sector. Vehicle production (strongly connected with prosperity) has dropped by 3.2 YOY, which resulted in a better than expected growth of manufacturing production by 0.6% YOY (despite higher from consensus increase of industrial production).

Good things, in the context of the pound, can not be said about the balance of foreign trade. Despite a weak sterling, the commodity exchange deficit in June (seasonally adjusted) has amounted to GBP 12.8 billion (estimated at 11 billion). Also, it has been the fourth worst result ever. Total trade (including services) has recorded a deficit of 4.5 billion pounds so 2 billion more than expected. This data has indicated that, fundamentally, the pound may weaken at any time even though it has been close to multi-year lows in relation to the euro or even to the recently weak zloty.

The next few hours on the FX market have brought a slow drop of the zloty. The price of the euro, as expressed in the Polish currency, has been the most expensive today since Friday, April 21st. Two days later, the first round of presidential elections in France took place, which has significantly improved sentiment in our region and strengthened the zloty. A return above these levels has indicated a negative sentiment to the native currency. It is also worth noting, that in the last 5 days the zloty has been the second from the end among the 31 currencies of emerging and developed countries.

The afternoon on the domestic currency should not bring more changes and the zloty may still be under pressure. The number of macroeconomic data from the US has been limited. William Dudley's speech has been scheduled, though it has been relatively unlikely that his comments on inflation would be so clear that would have the significant impact on the dollar or interest rate expectations given the current global situation.

 


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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