Daily analysis 22.12.2016

The currency market is relatively calm before the announcement of the American data. Yesterday’s decision from Riksbank may not only be significant for the Swedish currency. The zloty is stable against the main currencies, as well as against the forint.

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

• 14.30: Final GDP reading from the USA for the third quarter (estimation: positive 3.3% in annualized interpretation).
• 14.30: Orders for durable goods from the USA (estimation: negative 4.8% MoM, excluding transport: positive 0.2% MoM).
• 14.30: Weekly jobless claims from the USA (estimation: 257k).
• 16.00: Incomes and expenses of Americans (estimation: positive 0.3% MoM and positive 0.3% MoM, respectively).
• 16.00: PCE inflation from the USA (estimation: positive 1.5% YoY, excluding fuel and food: positive 1.7% YoY).

Data series from USA

This morning, the dollar index lost approximately 0.2% in comparison to its quotations from yesterday. This is not a large change, especially if we take the scale of the recent growths into consideration. Moreover, we can see a stabilization at lower level. Profitability of the American two-year treasury bonds are near the level of 1.2%, while the records which were reached in mid-December were near 1.28-1.30%.

The interest rates market, as well as in the currency market, are most likely anticipating today’s macroeconomic data from the USA. This will be the last data series for this year. Therefore, we may expect a slightly larger volatility between 2.30 PM and 4.00 PM. However, we do not expect any larger changes on the dollar if the most significant readings are relatively near the consensus.

We shouldn’t receive many signals from the GDP reading for the fourth quarter. This data will most likely be near its previous estimates. However, the report regarding orders for durable goods may appear more interesting. Estimates is near 0% MoM (positive 0.2% excluding transport). Taking into consideration volatility of these readings, this increases the risk of a negative surprise.

Another significant reading is the PCE core inflation from the USA. This index is used by the Federal Reserve for their macroeconomic forecasts. The market expectations are within the range of 1.7-1.8%. However, the final reading may be worse than expected. This is because the CPI core inflation reading was worse as well.

Despite that there is a slightly larger chance for a negative surprise for the dollar, the amount of the macro data (incomes and expenses, and weekly jobless claims, apart from the above mentioned) makes it less likely that the entire message will be harmful for the American currency. Therefore, the EUR/USD may go above 1.0500, but it will be difficult for it to remain there for the next days.

Hawkish Riksbank

Yesterday, the Swedish krone market was slightly surprised with a more hawkish message from the Riksbank. Theoretically, it was possible to foresee that the Swedish central bank will reduce the QE scale (from 45 billion to 30 billion SEK). However, the division of votes within the Swedish monetary authorities suggests a larger will to abandon the extremely mild monetary policy.

During the previous decision regarding the scale of purchase of assets six months ago, only one representative voted against the QE. Currently, three out of six Riksbank members had opposite views. Two of them didn’t want to extend the QE operation and one claimed that the purchase of assets should be extended by 15 billion.

Not only did the krone strengthen after this decision by approximately 1%, but Riksbank’s actions may also be a positive forecast of potential changes within the ECB. Of course, the economic situation within the euro zone is worse than it currently is in Sweden. However, the second half of 2017 will most likely bring a larger dissonance in views of the ECB members. This may be the beginning of the end of the euro’s depreciation trend.

PLN is stable

If today’s data from the USA is relatively consistent with the consensus, the chances for a larger volatility in evaluation of the main currencies against the zloty will be limited. Moreover, the EUR/PLN still can’t make it below the 4.40 level, even though the sentiment towards the emerging market currencies have improved. Additionally, the PLN/HUF is yet again near the level of 70, which shows the internal weakness of the zloty.

Nevertheless, yesterday’s information regarding the budget may be positive. According to the data from the Ministry of Finance, after eleven months, the deficit was at the level of 27 billion PLN, as well as slightly more than 50% of the plan. Taking into consideration that the result of the territorial government units (related to investment limits) may be positive, the actual deficit of the public finance sector may be near the level of 2%. This information is positive, especially regarding the forthcoming rating revision.