Daily analysis 13.06.2017

The consumer prices index in great Britain rose to the highest level in four years. However, the pound didn’t gain much as a faster price growth could negatively impact real wages. Small changes to the Polish currency.

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

• 2 p.m.: Core inflation index in May (estimate: 1% YOY, previous: 0,9% YOY),
• 2 p.m.: Current Account in April (estimate: -276 million euro, previous: -738 million euro).

Slightly better market sentiment

During yesterday’s session on the New York Stock Exchange, it looked like there would be a continuation of Friday’s drop in technological share prices. The Nasdaq index fell 1.9% at one point, however, regained most of the losses in later hours. This caused the sentiment to improve slightly which also translated to a better start to the European session on Tuesday.

ZEW also provided some support – their economic sentiment rose to 37.7 points, the highest level since August 2015. A higher demand for riskier assets caused the yen (perceived as a “safe haven”) to lose value. The Japanese currency was weaker against the dollar, among others – USD/JPY moved up above the 110 level once again.

The Office for National Statistics (ONS) published today a report regarding prices changes in the British economy in May. The consumer price index rose to 2.9% year-over-year, 0.2 percentage points above both market consensus and April level. Also, the core index (excl. the most volatile prices) similarly exceeded expectations and increased to 2.6% YOY. That were the highest levels seen in about four years, in both cases.

On one hand, this could be potentially positive for the pound as it could increase the probability of a sooner tightening of the monetary policy by the Bank of England. On the other hand, however, a higher inflation level could negatively impact Britons real wages. Inflation has been above the average wage growth already in recent months. A lower real income could translate to a lower consumption which, in turn, could cause the GDP growth to be lower, ultimately weakening the pound.

After initial fluctuations, the pound stabilised in relation to the dollar around the 1.27 level. Tomorrow at 10.30 a.m. CET, the ONS will also publish the average wage growth in April. The market consensus currently points toward an increase by 2.4% YOY (vs. 2.7% inflation in April). In the context of today’s inflation publication, a positive scenario for the pound could be a reading 0.2 pp above consensus. If the increase in the average wage is below expectations, the British currency could lose value.

One should remember, though, that political aspects have had the biggest impact on the pound recently. Theresa May will meet today with Arlene Foster, the leader of DUP in order to secure the 10 votes needed to have her government program approved. The pound’s depreciation as a reaction to the election result was a relatively mild one. Hence, potential difficulties in securing the needed votes could cause the pound to depreciate.

Zloty was stable

A better global sentiment was positive news for the Polish currency, which has been particularly susceptible to its changes. This enabled zloty to maintain its relative strength against major currencies. EUR/PLN remained close to 4.19, while USD/PLN oscillated around 3.74. Today’s inflation data from the British economy had a limited impact on GBP/PLN as it traded in a relatively narrow range of 4.74 – 4.75.

The Central Statistical Office (GUS) will publish today at 2 p.m. data regarding the April’s current account and core inflation in May. The market expectations suggest a C/A deficit of 276 million euro and 1% YOY core inflation. Although the data could give some insight into the path of inflation and inflow of funds from the EU, their impact on zloty will probably be limited. The Polish currency has been reacting to a greater extent to external factors – investors will probably focus on Wednesday’s Fed decision regarding interest rates.