Daily analysis 15.09.2016

The forthcoming Bank of England meeting will be interesting regarding relatively positive macro data, as well as the dovish announcement from August. The SNB has made minor changes in its message. The data series from the USA. The zloty is sustaining its growth from yesterday.

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

• 13.00: The Bank of England meeting (estimations: basic interest rate left at the 0.25% level; scale of assets purchase left at the level of 435 billion pounds).
• 14.30: Retail sales from the USA (estimations: negative 0.1% m/m; excluding fuel and cars positive 0.3% m/m).
• 14.30: Producers inflation from the USA (estimations: positive 0.1% m/m).
• 14.30: Weekly jobless claims from the USA (estimations: 265k).
• 15.15: Industrial production from USA (estimations: negative 0.3% m/m).

Bank of England in center of attention

It's very unlikely that any changes regarding the monetary policy will be made during the Bank of England (BoE) meeting today. The basic interest rate, as well as the scale of assets purchase are estimated to remain at their current levels (0.25% and 435 billion pounds, respectively). However, this doesn't mean that the market will ignore this event.

At the beginning of August, the BoE sent a clear signal to the market, by cutting interest rates, increasing purchase of treasury bonds, including corporate bonds into the QE program and activating a special program of inexpensive financing of the economy. Moreover, the announcement contained information that, “the majority of the members expects another monetary easing by the end of the year, if the new data is consistent with macroeconomic forecasts from August.” Today, the market is wondering, whether the above sentence will remain unchanged.

In order to answer this, it's worth noticing that this is a conditional sentence and it's dependent on the macroeconomic data. The GDP growth forecasts for 2017 have been quite clearly reduced by the BoE (from 2.3% to 0.8%). This was probably caused by the accelerating indexes from July to a significant degree. However, the PMI indexes have returned to their level from before the referendum in August. This may be the argument to modify the statement from last month.

On the other hand, the BoE may want to buy some extra time by waiting for new macroeconomic projections (today's meeting will end with an announcement and the minutes). The sentence regarding declines may remain unchanged. However, it's possible that the minutes would contain the opinions from more hawkish BoE members (Forbes or McCafferty) stating that the data is better than estimated. This may suggest that the previously mentioned sentence may disappear in November, when the new economic estimations will be revealed. This may be caused by an up revision of forecasts for 2017, in comparison to estimations from August.

As a result, even if the general BoE message remains dovish, the market will still try to find elements that indicate a suggestion of withdrawal from monetary easing this year. Such arguments may cause the pound to cross the 1.33 level on the GBP/USD, instead of continuing its depreciation.

This scenario may also be sustained by the retail sales data for August from the United Kingdom. Even though it won't directly impact the decision from the BoE, it's still worth noting that sales with exclusion of fuel has increased by 5.9% y/y. This is one percentage point more than estimated. Moreover, the data for August has been revised up by 0.4 percentage point.

No changes in SNB and American data

There are not many fundamental changes in the announcement from the quarterly meeting of the Swiss National Bank (SNB). However, the Swiss monetary authorities continue to think that the franc is significantly overvalued. Moreover, the deposit rate remains at the level of negative 0.75%.

The SNB has also promised to be active in the currency market if necessary. However, inflation has been revised. This is visible in data for 2018, in particular. In June, the SNB expected an increase in prices at the 0.9% level. Currently, the expectations are by 0.3 percentage points lower. However, the data for the franc is neutral, in general.

It may get more interesting this afternoon. This is when the American data is published (retail sales data, jobless claims and industrial production). Retail sales data should be the most significant. If it exceeds the level of positive 0.3% m/m (excluding fuel and cars), we may expect that the dollar would receive it positively. However, if the data is to cause a more durable reaction, a better condition of the American economy needs to be indicated by the entire data series. Chances for this scenario are limited.

Zloty sustains its growths from yesterday

Past few hours have been positive for the Polish currency. Not only the euro or the franc cost less, but the zloty is the strongest against the forint in three weeks. The PLN/HUF went above the 71.50 level. However, we continue to think that the short-term undervalue of the zloty is at the level of approximately 1%. Therefore, assuming that the external conditions would be relatively neutral, the EUR/PLN should move towards 4.30.

We don't expect the American data from today to impact the entire zloty basket. The reaction should only focus on the USD/PLN. Therefore, this afternoon should be relatively calm. On the other hand, if the Bank of England is more dovish than expected, the pound may climb higher in the afternoon.