Daily analysis 14.11.2017

Germany's GDP is significantly above consensus, but overall economic growth in the eurozone as a whole was in line with economist’s expectations. The lower than estimated inflation in the UK does not allow the pound to pare the last losses. Polish GDP slightly above forecasts, but without major impact on the PLN.

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.: Core inflation in Poland (estimate: 0.9% YOY),
• 2.30 p.m.: Producer inflation (PPI) in the USA (estimate: 2.4% YOY).

Day with GDP readings

Destatis published German GDP data before the start of trading in Europe. The publication markedly exceeded the estimates of economists. The economy of Poland's western neighbour grew by 2.8% YOY (consensus 2.3% YOY) and 0.8% QOQ (0.6% QOQ). Since this was a preliminary reading, its individual components were not published.

Interestingly enough, shortly after this data was published some noticeable increases on the main currency pair were observed. The GDP from Germany is, of course, an important piece of information for the single currency area, but the chance that the German economy will continue to grow so strongly in the coming quarters is limited, especially if there is no data on elements that created it.

The reaction on the EUR/USD pair was not confirmed by the debt instruments market where the yield on German bonds decreased slightly in comparison to yesterday's closing either. The spread between the government bonds of Germany and the US has not narrowed down either, which could give a positive impulse for the currency. As a result, the data could only be used as an excuse for breaking the market from the last long consolidation.

It is worth noting, that the overall data for the eurozone as a whole didn’t surprise. Eurostat's publication was in line with the first estimates. The single currency area developed at 2.5 YOY in Q3. More surprises in terms of GDP were present outside the eurozone. In seasonally-adjusted terms, the Romanian economy grew by 8.6% YOY (7% YOY in the first three quarters), Latvia's economy grew by 6.2% YOY, while the Czech Republic and Poland's economy grew by 5.0% YOY. In general, the morning data did not seem to justify such a strong upward movement on the EUR/USD pair, especially given the reading for the euro area as a whole -- which was in line with expectations.

The pound still under pressure

After yesterday's strong weakening of the pound connected with press speculations on the vote of no confidence in PM Theresa May, today the sterling remained under pressure. Firstly, both consumer (CPI) and producer (PPI) inflation is likely to slow down. CPI in October remained at 3.0% YOY (consensus 3.1% YOY) and month-after-month inflation amounted to 0.1% (previously: 0.3%, estimate: 0.2%). The core reading was at 2.7% YOY level, while the value of 2.8% YOY was expected.

A similar situation was observed in the case of PPIs. Production inflation slowed down -- from 3.3% YOY to 2.8% YOY (estimate: 2.9% YOY). In PPI's core term, it dropped from 2.5 to 2.1% YOY. Inflation below expectations reduces the Bank of England's chances of further rate hikes.

The sterling is not able to pare some losses also due to Brexit information. As quoted by Bloomberg’s Emma Marcegaglia, the head of BusinessEurope, asked Brexit Secretary David Davis what the chances are of reaching a split agreement between the EU and the UK in December. Davis was supposed to answer that this is 50:50 chance. However, Davis' spokesperson said in an email to Bloomberg that he has not presented such opinion. According to financial institutions, the chances of agreement in December are estimated at 68%.

GDP data with limited impact on the zloty

Apart from the single currency area countries, GDP data for Q3 was also published in Poland. The economy grew by 4.7% YOY (consensus 4.5% YOY) and in seasonally-adjusted terms, by 5.0% YOY. Although official data does not include individual components, it is likely that finally, we will experience growth that is not only driven by consumption. Maria Jeznach, Director of the National Accounts Department of the Polish Central Statistical Office (GUS), said at a press conference that the contribution of construction production to GDP exceeded 1 percent. Moreover, the impact of exports on the Q3 data was also positive, according to Jeznach.

Despite this positive information and the perfect agreement of the GUS reading with the European Commission's latest optimistic estimates of the Polish economy (EC estimated an increase of 5.0% YOY in seasonally-adjusted terms), it is likely one of the last quarters with such a rapid development. The vast majority of forecasts show that within the next two years, the GDP will be closer to the limit of 3% rather than 4%.

Today's GUS data did not have much influence on the zloty. The EUR/PLN pair decreased slightly in the morning, but around midday, it returned to the range of 4.23-4.24. Also, other readings (core inflation) should not be expected to clearly disturb the domestic currency's quotations and the zloty will probably remain close to the values observed at midday.