Daily analysis 21.04.2017

21.04.2017 12:22|Marcin Lipka

The eurozone’s PMI for both the industrial and services sectors has yet again exceeded its long-term records. The British retail sales data was clearly worse than expected and has overvalued the pound. The zloty remains weak but is stable before the presidential election in France.

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

  • 14.00: The MPC minutes.
  • 15.45: The American PMI for services and industry (estimates: 53.2 and 53.8, respectively).

Very positive PMI

IHS Markit published the data regarding the eurozone’s business cycle. The readings have yet again indicated a very positive condition of both the industrial and services sectors. However, these publications have not been significantly reflected in the hard data.

The PMI increased to the level of 56.7 points, which is the highest in six years for this index. The employment index quoted its largest growth in approximately ten years and since the year 2000 for services and industry respectively. Moreover, new orders in the eurozone’s industrial processing increased the fastest rate since March 2011.

When it comes to particular states, France quoted its six-year maximum (57.4 points) and the business cycle index for Germany went down slightly but it remains at the very high level of 56.3 points. What’s interesting is that the worse result from Germany was worked-off by the other eurozone countries (Italy, Spain, Holland, Austria, Ireland and Greece).

The IHS Markit senior economist, Chris Williamson, wrote in his commentary to the data that, “the April flash PMI is running at a level consistent with 0.7% GDP growth”. However, it seems that the recent data may cause a discussion about disproportions between surveys and actual economic data, instead of causing a positive reception. Positive PMI readings from the eurozone have been observed for a few months, but the eurozone’s industrial production only managed to increase 0.2% YOY and 1.2% YOY in January and February respectively. This is clearly lower than the two-year average (1.7% YOY).

Weak data from the United Kingdom

At approximately 10.30, the Office for National Statistics (ONS) published the data regarding British retail sales for March. The estimates were at the level of positive 3.3% YOY. However, the final result was significantly lower (1.7% YOY).

In addition, sales volume from the previous quarter was by 1.4% lower than it was in the fourth quarter of 2016. According to the ONS, “This is the first time we’ve seen a quarterly decline since 2013 and it seems to be a consequence of price increases across a whole range of sectors”.

It’s likely that lower activity from British consumers would provoke the discussion regarding the consequences of Brexit anew. Moreover, this topic may appear particularly popular during the election campaign. Therefore, it may be increasingly difficult for the pound to continue its current upward trend.

Zloty has been weak but stable

The zloty has been fairly weak against the main currencies. The EUR/PLN is near 4.27 and both the dollar and franc are only 0.01 PLN away from the 4.00 PLN level. The zloty has been weak against the forint as well. In comparison to Wednesday, the PLN/HUF went down from approximately 74.00 to the area of 73.35.

The worse condition of the zloty is mainly related to the market’s anxieties regarding the presidential election in France. As a relatively liquid currency, it will most likely be very vulnerable to potential overvalue in the case of Melechon succeeding to the second round. Even though this is not the base case scenario, its fulfillment would cause the EUR/PLN to go rapidly above 4.30 and the pound, dollar and franc would increase by approximately 0.10 PLN.

 


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