Daily analysis 24.01.2017

Positive economic trends in the euro zone. The British Supreme Court’s verdict will not change much regarding Brexit. Is the United States afraid of the strong dollar? The zloty remains stable against the main currencies.

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

• 15.45: Initial reading of the American industrial PMI (estimates: January – 54.5 points).
• 16.00: House sales in the American secondary market (estimates: December – 5.51 million in annualized interpretation).

Positive start of the year in the euro zone

This morning, we received the PMI readings from the euro zone for January. Just like last month, this data appeared to be positive. Moreover, the collective industrial index for eight analyzed countries reached its highest value in sixty-nine months (55.1 points).

The report from IHS Markit also states that in January, employment in the euro zone increased the fastest since 2008 and an increase in export was the largest since the beginning of 2014. Moreover, economists estimate that the forthcoming quarters will be positive as well. Their evaluation of the forthcoming twelve months was at its highest level since July 2012.

In his commentary to the data, Chris Williamson, IHS Markit chief economist, stated that the data from January shows a 0.4% GDP growth for the first quarter. When it comes to the German data, as well as to the entire 2017, IHS Markit expects the GDP to grow 1.9%. Today’s data is positive for Poland as well. A positive start of the year in the euro zone and in Germany, has increased the chances for the Polish economic growth to reach the level of 3% in 2017.

Neutral verdict for the pound

This morning, the British Supreme Court decided that it is the duty of the parliament to activate the procedure of the United Kingdom leaving the European Union. However, this information is of minor significance for the pound. Primarily, such verdict was expected, because the higher court decided the same.

Secondly, last week the British prime minister announced that the eventuall Brexit plan will be voted by the parliament. Therefore, the above mentioned verdict will not soothe the Brexit conditions, as it was expected last year. The third element that shouldn’t change investors’ attitude towards the pound, is the fact that conservatives have the majority in the House of Commons. Moreover, it’s likely that the majority of the opposition will support the offer of Brexit process, just for the sake of not opposing the nation’s will, which was expressed in last year’s referendum.

However, Scotland’s potential behavior still remains unknown. The Supreme Court decided that the local parliament will not be obligated to vote over Brexit process. However, we can’t rule-out that the Scottish National Party will strive to repeat the referendum regarding Scotland’s independence. Nevertheless, this problem is a far-cry and the market most likely will not focus on in for the time being.

One question riddle

The dollar wore-off clearly last night. This overlapped the time of publishing of Steven Mnuchin’s answers to the questions from the American senators. Mnuchin has been nominated by Trump for the US Finance Secretary. Information agencies have been citing his statement that too strong dollar may be negative for the American economy.

However, the question was actually about a further 25% appreciation of the dollar, instead of its current evaluation. This significant change would result in negative consequences for the entire economy. Therefore, Mnuchin simply referred to the presented scenario. However, he also claimed that, “he strength of the dollar has historically been tied to the strength of the US economy and the faith that investors have in doing business in America. (…) A stronger dollar increases US dollar purchasing power.” This statement does not indicate that Trump’s administration is against the stronger dollar.

Zloty remains stable

Today, fluctuations of the zloty against the euro have not been larger than approximately 0.005 PLN. The forthcoming hours most likely will not bring any larger changes on the EUR/PLN. The level of 4.37 remains the base case scenario. The situation should be calm on the franc as well.

We can observe some changes on the pound. However, they are caused by fluctuations of the British currency against the euro, as well as against the dollar. The market couldn’t make up its mind on how to interpret the Supreme Court’s verdict. Despite a small depreciation of the GBP/PLN shortly after 12.00 AM, these events shouldn’t be crucial for the pound.