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Daily analysis 26.06.2017

26 Jun 2017 12:21|Marcin Lipka

German Ifo index at all-time-high. Williams on the Fed’s monetary policy. A series of speeches from central bankers. The zloty is stronger after unemployment data and solid German readings. Zubelewicz from the Polish MPC on inflation rate target.

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

  • 14.30: Durable goods orders from the US for May (survey: negative 0.6% MOM excluding transportation +0.4% MOM).

Another set of solid data from Germany

During the European morning trade, positive data was released on Germany. The Ifo index, which evaluates companies’ sentiment, rose to 115.1 points. This is the highest level since 1991 when the measure was established. The publication also exceeded its May value by 0.5 and was higher than market expectations.

It is worth noting that with the current assessment of the situation, the sub-index expectations also moved higher. This increases the probability that the current trend will be continued in the near future at least. Moreover, if we look at various sectors, it is hard to find a weak point. The manufacturing result is close to historical highs (26.1 points vs. 28 points). A similar observation can be made regarding construction (marginal reduction), wholesale and retail.

In summarizing the surveys, the Institute writes that, “companies were significantly more satisfied with their current business situation this month. They also expect business to improve. Germany’s economy is performing very strongly.” On the other hand, it is still important to remember that despite the recent high reading survey, research has recently been presented regarding a pessimistic picture (PMI after UK referendum) or a too bullish picture (ISM and consumer confidence after the US election).

Williams and the other central bankers

John Williams, the Fed San Francisco president noted in Sydney today that he still expects inflation to move toward the 2 percent target in 2018. The recent slower price movement is caused, according to Williams, by “transitory factors.”

The San Francisco Fed official also argued that a very strong labour market brings risks of overheating the economy. Williams is regarded as slightly more hawkish than the consensus. He will also be a voting member in 2018. Overall, it is clear that his view hasn’t changed much since the most recent softer data publications.

For the next few days, a relatively large number of speakers from leading central banks are scheduled to deliver their message. Over the next three days, comments from Mario Draghi (the ECB governor), and former Federal Reserve chief Ben Bernanke, are expected to be delivered at the bankers’ forum in Sintra, Portugal. It is also possible that MPC officials will be interviewed by financial media which also increases risks for higher volatility in the following days.

Although Fed chief Janet Yellen will not be present during the ECB organized forum, she is planning to take part in a discussion on the global economy at an event in London. No official speech text is scheduled, but the Fed chair is supposed to take some questions from the audience. This may also increase the volatility caused by the Sintra forum.

The zloty is supported by stronger Polish and German data

The zloty is slightly stronger during the opening. It rises against the euro around 0.25%, and the common currency is traded around 4.21. A stronger performance of domestic currency is caused both by another positive message from Polish labour market (where the unemployment rate fell to 7.4%), and solid Ifo data from Germany. The PLN also gained around 0.1-0.15% against the Hungarian currency.

Besides the current issues, Dziennik Gazeta Prawna published an interview with Kamil Zubelewicz. The Polish MPC member said that CPI target should be cut below 2% from the existing 2.5%. He also added that keeping the current CPI target “unnecessarily” helps to weaken the zloty.

These comments may be regarded as zloty positive, but Zubelewicz also stressed that the MPC stance shows that it is possible that current interest rates will remain unchanged until the 4th quarter of 2019. Apart from the central bank member’s view, the zloty should remain fairly stable in the following hours and the base case scenario for the EUR/PLN will remain around current levels.


26 Jun 2017 12:21|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

23 Jun 2017 15:26

Afternoon analysis 23.06.2017

23 Jun 2017 12:38

Daily analysis 23.06.2017

22 Jun 2017 15:20

Afternoon analysis 22.06.2017

22 Jun 2017 12:30

Daily analysis 22.06.2017

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