Daily analysis 13.11.2017

13.11.2017 12:37|Marcin Lipka

A strong pound's depreciation after of the British press reports on the situation in the Conservative Party. The US macrodata should dominate over tax-related information in the coming days. The zloty loses slightly in value. The EUR/PLN in the range of 4.23-4.24. Rafał Sury's (member of the Polish MPC) comments on interest rates.

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

  • 2:00 p.m.: August's consumer inflation (CPI) from Poland (estimates: 2.1% YOY and 0.5% MOM),
  • 2.00 p.m.: Current account for Poland (estimates of current account: -350 mln EUR).

A strong pound depreciation

In the morning, the British currency is clearly depreciating. In comparison to Friday's closing valuation, it fell by 1% against the dollar and by 0.8 against the euro. The pressure on the sterling was caused by weekend reports from The Sunday Times. According to the newspaper, “forty MPs have agreed to sign a letter of no confidence in Theresa May.”

The Sunday Times also writes that 40 conservative parliamentarians are “eight short of the number required to force a leadership challenge.” All of this information comes at a time when two government members are leaving this month and tense negotiations with Brussels are happening. It is less probable that exit agreements (mainly on the Brexit bill) will be agreed upon before the EU summit in mid-December. The next term is likely to be March. Brussels, on the other hand, does not agree with beginning talks on a future trade agreement without settling the UK's commitment to the EU.

In the coming days, apart from the political events in the Islands, there will also be much economic data (inflation, wages, retail sales) that could also increase the volatility on the sterling. However, the latter showed a better condition than the consensus had shown, which together with high inflation, should sustain rate hike’s market valuation by 0.25 percent in the perspective of the coming year. If the trend in the data does not change, it may help rather than harm the sterling.

A calm first few hours of Monday's trading on the EUR/USD, although there is a slight US currency appreciation. Last week, the dollar’s movements were mainly driven by tax reports. However, this week may be different. Moreover, the vote on the tax law proposed by the House of Representatives (corporate tax cut from next year) is scheduled for Thursday, but it seems that the Senate's work on changes in the tax system will be most important at the moment. Voting in the US Congress's upper chamber will probably only be held after Thanksgiving Day (November 23rd) which is at a point between months. This week, macroeconomic data from the US can take the initiative.

Wednesday may be particularly important due to the fact that October's inflation data will be published. Although the CPI readings (Fed takes into account PCE and will be published at the end of the month) are the only effective data, it will be possible from as soon as this week's publication on whether the inflationary pressure is finally being built (core reading) or if the price increase is still slow. In addition, October's data on retail sales will be published, which should not be affected by weather issues. Higher than expected inflation, combined with good retail sales, can support the dollar despite ongoing discussions on tax system reform.

A slight depreciation of the Polish currency

The zloty remains stable in relation to most of the currencies. In the morning, there was a slight depreciation of the zloty but the EUR/PLN is still in the range of 4.23-4.24. Bloomberg agency published an interview with Rafał Sara in the morning. A member of the MPC said that he is in the middle, between the Polish hawks and doves on rates, but November's inflation projection shifted him slightly toward the hawks. The interview did not provoke major changes to the zloty, but it can be seen that if inflationary pressure persists, the discussion on monetary tightening may intensify.

In the afternoon, interesting data from the Polish economy will be published (final inflation data for October and current balance for September). In the first case, the components of price increases last month will be very interesting (to what extent it was caused by core factors). In the latter, we may have to deal with current account data that is clearly better than the consensus. According to the Polish Central Statistical Office (GUS) data on Friday, the foreign trade surplus amounted to approx. 1 billion EUR in September. If this reading is confirmed in the NBP's estimates, a current account surplus may be reached, despite the deficit expected by the consensus of about billion 350 million EUR. However, the chance that this data will clearly disturb the zloty's afternoon trading is limited.

 


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