Daily analysis 19.12.2016

Another positive Ifo index from Germany. Bullard and Lacker spoke of the perspective for the American interest rates. Scotland will publish its plan regarding Brexit. The zloty is calm, but the afternoon’s data from the Polish economy may be significant for the Polish currency.

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

• 14.00: Retail sales from Poland (estimation: positive 4.8% YoY).
• 14.00: Industrial production from Poland (estimation: positive 1.7 YoY).
• 14.00: Building production from Poland (estimation: negative 18.9% YoY).
• 15.45: PMI for the American services sector (estimation: 55.2 points).

Consolidation on the dollar

Two representatives of the Federal Reserve made their testimonies at the end of last week. James Bullard was interviewed by The Wall Street Journal, as well as by Bloomberg. Jeffrey Lacker presented his views regarding the monetary policy at the conference in Charlotte, North Carolina.

According to Lacker, there may be a need to raise interest rates more than 0.75% next year. However, it is commonly known that his estimates regarding rate hikes have recently been one of the highest. Therefore, the above statement should not be surprising.

Interviews with Bullard were a better hint regarding the Committee’s view on the monetary policy. The St. Louis Fed chairman has repeatedly emphasized the necessity of anticipating the decisions from the new American administration regarding a decrease in taxes, an increase in infrastructural expenses or a change in regulations for companies. Just as the entire Federal Reserve, Bullard increased his estimates regarding interest rates for next year. However, Bullard only assumed a 0.25% monetary tightening until the end of 2019.

It’s also worth noticing that both Bullard and Lacker expect that the plans for fiscal stimulation will become clearer in mid-2017, but their real impact on the economy will not be observed until 2018. Nevertheless, we must keep in mind that monetary policy, as well as the market, acts preemptively. Therefore investors, as well as the Fed, most likely will not wait for the changes made by Congress to translate to the real economy.

New positive data from Germany

This morning, we received another portion of positive data from Germany. The Ifo Institute index, which measures the entrepreneur sentiment in Germany, increased it to the level of 111.0, whereas the expectations were by 0.4 percentage point below this result. Moreover, the Ifo was only 0.2 points below its highest level in five years.

Another positive element is the fact that sentiments improved in the majority of crucial sectors (processing sector, building sector, wholesale sector). Only the retail sales sector experienced no changes. In his commentary regarding the data, the Ifo chairman, Clemens Fuest, noticed that the evaluation of the current situation is at its highest level since February 2012. Moreover, perspectives for the first half of 2017 are slightly more optimistic as well.

Positive data from Germany suggests potential improvement in the Polish business cycle. However, we may have to wait a few months until accelerating indexes translate to higher consumption, as well as to investments in Germany. This also means that we may see an improvement of Polish export in mid-2017.

Plan for Scotland

In an article in today’s Financial Times, Nicola Sturgeon, chairwoman of the Scottish National Party, announced that she will publish a plan this week. This plan’s purpose would be to protect Scotland’s place within the European Union. Sturgeon also brought up that 24% of Scots have voted in favor of remaining within the EU.

The most significant thing regarding the pound would be a potential repetition of the independence referendum. The plans of this type of decision alone would significantly wear-off the pound, especially considering that few surveys are able to guess the social sentiment. Therefore, speculations regarding the referendum result would last until the official data is announced. However, Sturgeon did not mention the need of repeating the referendum, for the time being.

Important data for zloty

This week’s beginning was relatively calm for the zloty, as well as for other emerging market currencies. However, today’s data from the Polish economy may cause some volatility. The data for October was quite weak (industrial production and building production, in particular). If today’s results show that the building sector decreased by more than 20% YoY in November and the industrial activity is worse than it was last year, the zloty may wear-off by 0.01-0.02 PLN against the main currencies.

Negative data from Poland may also increase the risk of a lower GDP reading. According to the Nordea Markets estimates, the Polish GDP for 2017 will be at the level of 2.4% YoY. However, we think this result may be even lower (approximately 2% YoY) if a negative trend regarding production and the building sector continues in December.