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Daily analysis 10.11.2017

10 Nov 2017 12:36|Marcin Lipka

The Senate’s version of changes in the US corporate tax cut is not expected to be introduced until 2019. Better than expected data from the UK does not help the pound. The zloty remained stable. The EUR/PLN pair close to 4.23. The USD on November's lows around the 3.63 level.

The most important macro data (CET - Central European Time). Surveys of macro data are based on the information from Bloomberg unless noted otherwise.

  • No macro data that can clearly influence the analysed currency pairs.

The dollar under pressure

Previous reports from the Washington Post have confirmed that the tax modification plan presented by the Republican Senators will differ from that which was presented by the House of Representatives. The main element that will attract investors' attention is the moment when that the corporate income tax (CIT) cut will be implemented.

According to the ruling majority in assumptions from Congress's lower house, the reduction of the tax burden on CIT-paying people (from 35% to 20%) was to become effective by 2018. The Republican senators' plan assumes that cuts won’t be implemented until 2019, while the Senate’s plan also assumes that the number of tax thresholds will remain unchanged (7). Median savings for households will be similar to what we have seen in the House of Representatives' plan. The deduction plan (state deductions, medical insurance, student credit) is also expected to be slightly different, but overall this should no longer have a significant impact on the reaction of the market.

The hypothetical delay in the implementation of the CIT cut caused downward pressure on the market. The dollar also reacted negatively. Its index is currently approximately 0.5% below Thursday morning levels. Therefore, the EUR/USD valuation has also increased, moving close to the 1.1650 boundary.

Currently, the market won’t focus on which plan (the House of Representative or the Senate) will have a better chance of being introduced. Next week, the lower house of Congress will hold a vote. In December, however, one of the versions should be signed by President Trump. Taking into account the response of the USD, the House of Representatives’ plan would be more beneficial to the US currency. This would mean focusing on fiscal impulse for one year (lower CIT and PIT) for a better chance of higher inflation, i.e. higher interest rates. The distribution of reductions over a longer period of time (the Senate's plan) and the hypothetical risk of their actual introduction is negative information for the USD.

Better data, but reaction is limited

At 10.30 a.m., the Office for National Statistics (ONS) published macroeconomic data for September. Another increase in industrial production (2.5% YOY, expectation: 1.9% YOY) should be perceived as positive. The electronics production amounted to 9.7% YOY, machinery and equipment - 9.2% YOY and vehicles - 5.8% YOY. The total manufacturing production increased by 2.7% compared to September 2016.

Trade data should also be identified positively. The ONS has significantly revised the goods trade balance deficit for August downward (from 14.2 billion to 12.3 billion GBP). As a result, the foreign trade deficit (together with services' positive contribution) decreased from 5.6bn GBP to 3.4bn GBP in August. September's data was also clearly better than estimated - the overall deficit was 2.7 bn GBP, and it was estimated that this would be 4.3 bn GBP. Construction production, which instead of increasing by 1.7%, grew by 1.1%, therefore failed to met expectations. However, the data should be viewed as positive. Increasing industrial production with a declining deficit may help the pound (without much reaction today) especially if London's negotiations with Brussels suggest that the two sides have come closer together.

Stabilising zloty

The Polish currency’s quotations remained stable. The EUR/PLN pair’s morning value is close to 4.23. The dollar is a bit cheaper than it has been over the past few days - costing 3.63 PLN per unit. Yesterday's forecasts regarding Poland from the European Commission on the public finance sector deficit will be around the level of 1.7% next year and will point at a 3.0% inflation (2.9% in Q3 and Q4 2019). This should favour the zloty in the long term.

In the perspective of the upcoming hours, the overall valuation of the zloty shouldn’t change significantly. In the context of the dollar, the US session will be important. The maintenance of negative sentiment on shares increased the risk of further dollar depreciation. Therefore, if the American indexes remain under pressure, the USD may also lose in relation to the zloty.


10 Nov 2017 12:36|Marcin Lipka

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.

See also:

9 Nov 2017 15:12

Afternoon analysis 09.11.2017

9 Nov 2017 12:51

Daily analysis 09.11.2017

8 Nov 2017 15:15

Afternoon analysis 08.11.2017

8 Nov 2017 12:39

Daily analysis 08.11.2017

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