Daily analysis 19.09.2016

The dollar is sustaining its growths from last week before the Federal Reserve meeting on Wednesday. Standard & Poor's increased Hungary's rating. The zloty continues to strengthen against the euro. Today, we will receive important data regarding retail sales and industrial production.

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

• 14.00: Industrial production from Poland (positive 5.4% y/y).
• 14.00: Construction and installation production from Poland (estimations: negative 13.4% y/y).
• 14.00: Retail sales from Poland (estimations: positive 4.5% y/y).

Waiting for Fed

The American CPI data from Friday was higher than expected. Therefore, they have caused visible changes in the market. The EUR/USD went clearly below 1.1200 and the pound's cost was at the level of slightly more than 1.30 dollar. Even though the reasons for this strengthening are doubtful, it's worth noting that the USD is at a good position before the Federal Reserve meeting on Wednesday.

Let's not forget that the Federal Reserve is taking the PCE inflation into consideration in its forecasts, instead of the CPI inflation. However, the FOMC will not have the PCE data yet, because it will be revealed at the end of the month. On the other hand, we need to notice that the CPI contained a significant increase in health care costs (0.9% m/m and 5.1 y/y).

Health care's significance is larger in the PCE rather than in the CPI. This may slightly raise the PCE perspective. However, it's possible that the data is slightly overestimated. It's difficult to expect the costs of health care to grow 1% per month, taking into consideration continuously low inflation.

Regardless of these remarks, the CPE has caused a strong market effect. The attempt of evaluating whether it was justified or not, can be solved within the forthcoming days. In general, the Federal Reserve does not take into consideration the data that hasn't been published. Therefore, there is no way that the CPI could impact the FOMC announcement on Wednesday. We continue to think that the announcement will be relatively dovish, apart from a clear consensus regarding one rate hike this year, which will be included in the macroeconomic expectations.

Upgrade of Hungary's rating

After many months of anticipation, Standard & Poor's has finally raised Hungary's loan credibility to the investment level. This information is of course positive for the Hungarian economy. As its result, the forint has strengthened slightly and the 10-year treasury bonds went to the area of 3.0%.

The S&P also raised the long-term perspective of economic growth (from 2.0% to 2.5%). The Agency also focused on a positive balance of current account, which is estimated to be at the level of positive 4.3% GDP in 2016. The analysts also appreciated progress of the Hungarian labor market. Over the past three years, the unemployment rate went down from 10% to 5%.

However, it's worth noting that the agency's decision has partially been expected. Therefore, the forint's strengthening against the main currencies was limited (at the level of approximately 0.5%). It's possible that the Hungarian currency will move according to the global sentiment in the coming days and the effect of the S&P decision may begin to fade away. On the other hand, in the case of possible deterioration of investors' sentiment, the forint may be more resistant to external disturbances in comparison to the zloty, for example.

Zloty is stronger before data

Positive sentiment in share market is also translating to a stronger zloty. On Monday before noon, the Polish currency continued the strengthening trend from last week, despite large fluctuations in the global markets. The zloty was slightly losing against the Hungarian forint, which is significantly stronger today.

At 14.00 (2.00 PM), we will know a series of data from the Polish economy: industrial production, PPI inflation and retail sales. The market consensus is assuming that the data will be better than it was in July. This theory has been supported by the recent readings. This should keep the zloty at the 4.30 level against the euro, where it currently is as we have expected. However, if the data is better than expected, this wouldn't continue to strengthen the zloty. This is because the appreciation potential of the Polish currency has already exhausted.