Higher than expected retail sales from Germany and rising core inflation bolstered the Sintra sentiment but no longer pushes the euro higher. Threre is still no breakthrough in the UK trade. The zloty is gaining some value due to correction on the common currency. The dollar on multi-month lows.
Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information unless marked otherwise.
14.00: Preliminary data on Polish inflation for June (survey: 1.7% y/y oraz 0.0% m/m),
14.30: US personal income and spending (survey: 0.3% m/m and 0.1% m/m respectively),
14.30: The PCE inflation from the US (survey: 1.5% r/r and minus 0.1% m/m; core 1.4% y/y and 0.1% m/m).
Maintaining market trends
The macroeconomic data published today supports a large part of the market trends that had been taking place since Sintra’s meeting. A perception regarding higher economic growth and inflation for the euro area are well supported by the German data. Retail sales for May rose 4.8% y/y (nominal 6.3%). Despite the fact that this readings are fairly volatile (even on y/y basis) the probability is raising that the pace of of personal consumption at 1.7% (average Jan-May period) may speed up.
After yesterday’s relatively elevated inflation reading from Germany (the highest in almost three years in terms of services prices apart from Easter-related disruptions) there were also expectations that the data for the euro area would be also quite high. However, core inflation exceeded market consensus by on 0.1 percentage point. Although it reached its second highest value in three years (besides previously mentioned holiday-related disruptions) there were probably slightly higher expectations for the increase. As a result, the data failed to push the EUR/USD higher and the pair remains close to 1.14 mark.
Regarding the EUR/USD valuation, readings on the US PCE inflation will be in focus today. Since market participants already know the CPI publication for May, the PCE should confirm the decline but the scale of the move remains unclear.
Economists polled by Bloomberg anticipates that the core PCE would be between 1.4% y/y and 1.5% y/y. The median, falls to the lower value and it seems that even the data matching survey result may be rather negative form the USD (lowest level since 1.5 years).
However it should not be excluded that the core PCE may even reach 1.3% y/y. If it happens market participants would have to deal with the lowest PCE core data for more than 6 years. This could further reduce the expectations for the US interest rate hikes and increase the selling pressure on the US currency.
Still without a breakthrough in the UK current account
In the morning the Office for National Statistics (ONS) reported data on current account. Deficit at 16.9 billion pound for the Q1 was exactly in line with market expectations. It should not, however, be seen as the positive or even neutral signal for the GBP.
The deficit on trade account didn’t decrease. In Q1 it was over 34 billion pounds which was 2 billion higher than in the same period last year. Lower GBP valuation didn’t help the decrease the goods balance.
On the other hand the foreign balance of services looks much better. The surplus topped 25 billion pounds which is an improvement of 2.5 billion over 2016. If we were in normal environment the positive outcome from services sector should level off the negative situation from visible trade. Now, however, when the UK is at the preliminary negotiations stage with the EU on the exit deal the services sector (where Britain has the surplus) any negative outcome from the talks would probably quickly increase fears that the services sector surplus may lessen. It would lower its positive input to the whole current account and put more pressure on the pound.
Slightly better sentiment
In the morning the CEE currencies sentiment slightly improved. A marginal euro depreciation and a decrease on euro area bond yields pushes the EUR/USD lower and contributed for a limited gain of the HUF and PLN to the EUR. However, the PLN/HUF pair still remains close to 73 mark which is near the lower bound of it trade since the beginning of the year. However, the global dollar weakness keeps the USD/PLN near the 3.70 mark which is also the lowest value since October 2015.
In the afternoon the GUS is expected to publish preliminary inflation data from Poland. The reading should not significantly deviate from the consensus value (1.7% y/y). Regarding the zloty much more important will probably be PCE inflation from the US. If it falls to 1.3% on the core basis we may seen further pressure on the USD/PLN with trading in the 3.65-3.70 range.
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.
Higher than expected retail sales from Germany and rising core inflation bolstered the Sintra sentiment but no longer pushes the euro higher. Threre is still no breakthrough in the UK trade. The zloty is gaining some value due to correction on the common currency. The dollar on multi-month lows.
Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information unless marked otherwise.
Maintaining market trends
The macroeconomic data published today supports a large part of the market trends that had been taking place since Sintra’s meeting. A perception regarding higher economic growth and inflation for the euro area are well supported by the German data. Retail sales for May rose 4.8% y/y (nominal 6.3%). Despite the fact that this readings are fairly volatile (even on y/y basis) the probability is raising that the pace of of personal consumption at 1.7% (average Jan-May period) may speed up.
After yesterday’s relatively elevated inflation reading from Germany (the highest in almost three years in terms of services prices apart from Easter-related disruptions) there were also expectations that the data for the euro area would be also quite high. However, core inflation exceeded market consensus by on 0.1 percentage point. Although it reached its second highest value in three years (besides previously mentioned holiday-related disruptions) there were probably slightly higher expectations for the increase. As a result, the data failed to push the EUR/USD higher and the pair remains close to 1.14 mark.
Regarding the EUR/USD valuation, readings on the US PCE inflation will be in focus today. Since market participants already know the CPI publication for May, the PCE should confirm the decline but the scale of the move remains unclear.
Economists polled by Bloomberg anticipates that the core PCE would be between 1.4% y/y and 1.5% y/y. The median, falls to the lower value and it seems that even the data matching survey result may be rather negative form the USD (lowest level since 1.5 years).
However it should not be excluded that the core PCE may even reach 1.3% y/y. If it happens market participants would have to deal with the lowest PCE core data for more than 6 years. This could further reduce the expectations for the US interest rate hikes and increase the selling pressure on the US currency.
Still without a breakthrough in the UK current account
In the morning the Office for National Statistics (ONS) reported data on current account. Deficit at 16.9 billion pound for the Q1 was exactly in line with market expectations. It should not, however, be seen as the positive or even neutral signal for the GBP.
The deficit on trade account didn’t decrease. In Q1 it was over 34 billion pounds which was 2 billion higher than in the same period last year. Lower GBP valuation didn’t help the decrease the goods balance.
On the other hand the foreign balance of services looks much better. The surplus topped 25 billion pounds which is an improvement of 2.5 billion over 2016. If we were in normal environment the positive outcome from services sector should level off the negative situation from visible trade. Now, however, when the UK is at the preliminary negotiations stage with the EU on the exit deal the services sector (where Britain has the surplus) any negative outcome from the talks would probably quickly increase fears that the services sector surplus may lessen. It would lower its positive input to the whole current account and put more pressure on the pound.
Slightly better sentiment
In the morning the CEE currencies sentiment slightly improved. A marginal euro depreciation and a decrease on euro area bond yields pushes the EUR/USD lower and contributed for a limited gain of the HUF and PLN to the EUR. However, the PLN/HUF pair still remains close to 73 mark which is near the lower bound of it trade since the beginning of the year. However, the global dollar weakness keeps the USD/PLN near the 3.70 mark which is also the lowest value since October 2015.
In the afternoon the GUS is expected to publish preliminary inflation data from Poland. The reading should not significantly deviate from the consensus value (1.7% y/y). Regarding the zloty much more important will probably be PCE inflation from the US. If it falls to 1.3% on the core basis we may seen further pressure on the USD/PLN with trading in the 3.65-3.70 range.
See also:
Afternoon analysis 29.06.2017
Daily analysis 29.06.2017
Afternoon analysis 28.06.2017
Daily analysis 28.06.2017
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