Daily analysis 30.01.2018

The morning increase in risk aversion faded. Eurozone's GDP data and publications on inflation from individual German Länder are in line with expectations. Strong Polish GDP reading. Attention is focused on investments. The zloty pared part of the morning losses and returned to the range of 4.14 - 4.15 EUR.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 2:30 p.m.: January’s CPI inflation from Germany (estimates: 1.7% YOY and -0.6% MOM),
• 3:00 p.m.: Change in real estates prices according to S&P CoreLogic in the USA (estimates: 0.6% MOM and 6.3% YOY),
• 4:00 p.m.: Consumer confidence index in the USA according to Conference Board (estimate: 123 pts).

Sentiment fluctuates?

Yesterday, appreciation of the US currency that was the highest since September was also reflected in the worse sentiment on Asian indexes. The increased risk aversion was also visible in emerging countries currencies. Many of them (including the zloty) lost about 1% in relation to the dollar (as compared to Friday's quotation closure). Interestingly, a further increase in US Treasury bond yields was not disrupted by the discount on the equity market.

Theoretically, when share prices are falling, the yields on Treasury bonds should also fall. Alternately, their growth may suggest that investors (despite the weaker market condition) expect the inflationary processes to accelerate and further tightening of the monetary policy by the Fed. During the Asian session, the yields on the US government bonds maturing in 10-years reached 2.73%, which was the highest level since April 2014.

Very negative news for currencies of developed countries was the fall of share prices combined with the increase in yields on government bonds of developed countries. They show both a worsening global sentiment as well as the fact that the attractiveness of interest rate instruments is declining in EM markets compared to developed markets. Around midday, the pressure on the currencies of countries dependent on market sentiment fell (along with the fall in bond yields in the US), the quotations from the past hours may indicate a slightly longer deterioration in the sentiment.

Data from eurozone and Germany

At 11:00 a.m., Eurostat published preliminary GDP estimates for the eurozone for Q4. In both quarterly and yearly terms, the data was in line with economic expectations at 0.6% quarter-on-quarter and 2.7% YOY. The data should have limited impact on the quotations of the single currency.

Until midday, January's inflation data from individual German Länder was published. In some cases, it was slightly higher than it was in December (Bavaria, Brandenburg) and sometimes lower (Hessen, Saxony). The overall reading for the whole country should be in line with market expectations (1.7% year-on-year) or could be slightly lower, but this difference should not cause strong changes on the EUR/USD pair.

US macro data should not provoke strong movements. The data is of limited importance for currencies and therefore will probably not differ significantly from recent trends (real estate prices, consumer confidence). The market will wait for the signals from the Fed, which will be released tomorrow, and observe the sentiment on US government bonds. The fall in yields from highs reached during the night has weakened the dollar and allowed the EUR/USD pair to return above 1.2400, but the situation in this market seems to be rather nervous and volatile.

GDP finally alive and kicking

Todays, GDP publication for Poland was a significant and positive surprise. The data in the secondary meaning was on Polish economic growth, which increased by 4.6% in 2017 and was a relatively close to market expectation readings (4.5% YOY). The most important information was that during all of last year, investments added as much as 1% to the readings (it was only about 0.3% for the first three quarters of last year and in 2016 it was 1.6%.) Therefore, in the last quarter, investments suddenly increased, which could mean reaching 10% and adding to Q4 growth even 2.5 pts of GDP in yearly perspectives. The Polish Central Statistical Office (GUS) did not report GDP growth for Q4 alone, but according to GUS President Dominik Rozkurta, as quoted by PAP, it could amount to about 5% year-on-year. In the context of GDP, it is also worth noting that the economy developed as a result of all components (consumption, investment and exports). This is a good signal for subsequent quarters as well.

The GDP data did not change the PLN exchange rate. This morning's fall of EUR/PLN was caused due to a weaker dollar and an increase in EUR/USD. However, it is worth noting that the market situation in the afternoon may be nervous, and the zloty may be under pressure if US shares continue to depreciate and US bond yields rise.