Daily analysis 30.08.2016

The Primary Dealers survey may still be valid, despite they have been conducted in the mid-July. The zloty remains weak. Unfavorable contribution of the particular GDP components may cause the growth to go below 3.0% y/y in the third quarter.

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

• 14.00: Initial inflation data from Germany (estimations for August: positive 0.5% y/y).
• 15.00: S&P Case Shiller index of real estates prices (estimations: positive 5.12% y/y).
• 16.00: Conference Board index of consumers sentiments (estimations: 97 points).

What are the chances for rate hikes in September?

In a few days, the leading financial media should publish estimations of economists regarding the probability of rate hikes. Due to the recent minutes or statements from the particular Federal Reserve members, chances for such a move are limited in our opinion.

One of the strong arguments that may stop the FOMC from the monetary tightening, are the Primary Dealers survey. It is conducted among the financial institutions that conduct direct transactions with the Federal Reserve. In this survey, the New York Fed department asks twenty-three companies their opinion regarding the current economic matters.

The result of the previous survey (from the mid-July) has been published approximately two weeks ago. However, it's worth noting that until past Friday, the situation regarding the probability of rate hikes in September was the same as one-and-a-half month ago. The market has been estimating it for approximately 20%.

The surveys shows that December is the expected moment of rate hikes. When it comes to 2017, two rate hikes at the 0.25% level are estimated – one in the mid-2017 and the second at the end of next year. The estimated level of interest rates at the end of 2017 is 1.13%, which is 0.75 percentage points more than currently.

Primarily, the Primary Dealers survey is one of the best elements of communication between the Federal Reserve and the market. Taking into consideration how cautious the FOMC is regarding the monetary tightening, it's very unlikely that they will make a move that would exceed estimations of the previous survey.

Secondly, a move in September could raise the entire path of monetary tightening. This, on the other hand, could quite quickly cause a global increase in risk aversion. Therefore, such a fast change in perspective of the future interest rates (after relatively dovish minutes) would be a strong, as well as a rather negative surprise for the market.

However, today's data will probably have a minor impact on the behavior of the main currencies. The interview with Stanley Fischer for TV Bloomberg was neutral for the dollar as well. The Fed representative was avoiding the topic of the current monetary policy, apart from the statement that a photo of him with Dudley and Yellen taken during the meeting in Jackson Hole, is a symbol of the unity within the FOMC. Theoretically, this may be a dovish element. That is of course, if Fischer adjusts his views to the views of Yellen and Dudley.

PLN continues to wear-off

The GDP components may cause anxieties, despite that today's GDP publication for the second quarter is consistent with the first estimations from the Polish Central Statistical Office (GUS) (positive 3.1% y/y). Moreover, this may mean that the third quarter data may be visibly below the level of 3.0% y/y.

Looking at the particular factors contribution in the GDP, we will see that the household consumption has added 1.9 percentage points. This is consistent with the previous trends. Public consumption caused a 0.8% increase. We may assume that we would see similar values in the forthcoming quarters. Therefore, we have a growth of total positive 2.7% y/y.

However, investments decline increased to the negative 4.9% y/y. This caused a nagetive contribution in the GDP at the level of 0.9 percentage points. This means that the general consumption minus investment, result in an increase at the level of positive 1.8% y/y. This would be the final result, if not for a positive contribution of supplies (positive 0.5%) and net export (positive 0.8%).

The tow latter categories are very volatile and difficult to estimate. Additionally, the supplies have been growing for another quarter in a row (in the first quarter they have added 1.3 percentage points to the GDP). Also, the pace of net export would probably not remain at a similar level as it did in the second quarter. Therefore, assuming that supplies and export would decrease and investments remain weak in the third quarter, the GDP growth may drop to the area of 2.5% y/y.

The forthcoming days seem unfavorable for the zloty. The Polish currency is behiving worse than the forint. Moreover, anxieties before the decision from Moody's regarding Poland's rating (the 9th of September) may grow. Even though we continue to estimate that the rating will remain unchanged, the latest macroeconomic data is unfavorable for Poland's loan credibility.