Daily analysis 14.02.2017

14.02.2017 12:47|Marcin Lipka

Inflation surprises from China and the United Kingdom. There are minor chances for fundamental changes in Janet Yellen’s message, but we can’t rule out the short-term volatility. The Hungarian GDP is lower than estimated and the Polish GDP appeared to be better than the consensus. The EUR/PLN is near the level of 4.30.

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

  • 14.30: The American producer inflation (estimates: positive 0.3% MoM; excluding fuel and food 0.2% MoM).
  • 16.00: Janet Yellen’s testimony in front of the Senate Bank Committee.

Inflation surprises

Today’s session is dominated by inflation data and Janet Yellen’s testimony. The first significant inflation reading of the day came from Chine. The Chinese consumer inflation increased from 2.1% YoY (December) to 2.5% YoY (January), against the expected 2.4% increase.

Surprising results came with the Chinese PPI readings. This index increased 6.9% YoY, which was by 0.4 percentage points more than expected. This result was mainly caused by changes in the raw material prices. In comparison to January 2016, the oil prices increased 83.5% and the ore prices increased 79.1%.

Spectacular growths of the PPI index were also quoted in the United Kingdom. According to the British Office for National Statistics (ONS), the PPI input increased 20.5% (2 percentage points more than estimated and approximately 5 percentage points more than in December.) Over one year, the oil prices increased 88.2%, imported industrial metals increased 36.7%, machines and devices increased 8.4% and food increased 22.9%. However, it’s worth keeping in mind that increasing prices in the United Kingdom were also caused by a significant depreciation of the pound, which has been at the level of 13.1%, according to the ONS data.

The ONS also published the CPI readings. An increase in prices for households was worse than expected (1.8% vs 1.9% YoY). However this index remained at the level of 1.6% YoY, after excluding fuel and food. This caused a clear overvaluation of the pound, because of reducing chances for rate hikes in the United Kingdom. The Bank of England most likely will not change its monetary policy, only because of a slight increase in the raw material prices.

Yellen’s testimony

Yesterday, we took note that there are minor chances for fundamental changes in the dollar’s evaluation due to Janet Yellen’s testimony. However, investors may react to single statements from the Fed chairwoman. They may refer to the fiscal policy, rate hikes in March or the monetary tightening in general.

It’s also likely that questions about the dollar’s evaluation will be asked. The most recent suggestions from some of the new American administration’s representatives regarding too strong dollar may provoke the Congress representatives to get additional information regarding this matter from Janet Yellen. However, in our opinion, she will try to leave the market with ambiguous answers (the dollar’s exchange rate is not the Federal Reserve’s goal). This is especially taking into consideration that the FOMC will receive new macroeconomic projections in March. Until then, a new plan of changes in tax system, which has been announced by both President Donald Trump and the White House’s spokesperson last week, may appear.

Improved sentiment on the PLN

The European Commission’s macroeconomic estimates from yesterday deteriorated the sentiment on the zloty. Moreover, today’s disappointing data regarding the Hungarian GDP (1.6% YoY vs 2.0% YoY) could have suggested a disappointing GDP reading from Poland as well.

Eventually, it appeared that the Polish GDP was much better than expected. According to the Polish Central Statistical Office (GUS), the GDP growth for the fourth quarter was at the level of 2.7% YoY, against the expected 2.5%. Moreover, the GDP growth in the Quarter over Quarter interpretation was at the level of 1.7%, which was its best result since the end of 2007. However, the structure of this growth is unknown, despite the previously published data for the entire 2016. However, this data needs to be interpreted positively, because it confirms the economic revival. Due to this data, the EUR/PLN returned near the level of 4.30 and the zloty strengthened by approximately 0.2-0.3% against the forint.

 


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