Daily analysis 31.05.2017

Due to the new YouGov survey, the pound lost value. Brainard has not altered her opinion regarding interest rates, in spite of lower inflation. The zloty remains both strong and stable. The GDP components were less optimistic than the general reading.

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

• 14.00: The CPI from Poland. Initial data for May (estimates: 2.0 YOY).
• 15.45: Chicago PMI (estimates: 57 points).
• 20.00: The Beige Book. Summary of the economic situation in particular districts of the Fed.

YouGov survey unfavourable for Tories

Decreasing advantage of the Conservative Party was indicated by yet another survey. According to the YouGov estimates, which were prepared for The Times, Theresa May’s party may have a shortage of twenty places to gain the majority in the parliament. This would complicate the Brexit process even more.

Nevertheless, it’s worth noting that this wasn’t a typical survey. According to The Times, the YouGov model is based on 50 000 interviews with electors, which are made within one week. On one hand, a properly selected sample group (age, social status, readiness to participate in elections, etc.) may improve the accuracy of estimating views of the entire population. On the other, this model is experimental to a certain degree. The YouGov CEO, Stephan Shakespeare, claimed that the model was tested during the Brexit referendum last year, and each time it had indicated the victory of Brexit supporters.

The Times also presented estimates from the other leading research companies, ComRes. According to the latter’s CEO, Andrew Hawkins, the Tories may win more than one-hundred places above the majority in the parliament, as long as electors behave as they did during the election in 2015.

Uncertainty regarding next week’s election has been increasing. The GBP/USD went below 1.2800, in spite of the weak global condition of the dollar. Moreover, the GBP/PLN went below 4.80.

Is Brainard in favour of further hikes?

We took note that yesterday’s testimony from Lael Brainard will be essential. She has been torn between the Fed faction that doesn’t see the necessity of further hikes (Bullard, Kashkari) and those who are counting on at least two rate hikes this year.

The crucial moment of Brainard’s testimony was the excerpt stating that if there’s no progress regarding inflation growth, her expectations regarding the future rate hikes may be re-considered, but afterwards she added that it’s too soon for that yet. This shows that the combination of a fairly positive condition of the global economy, expected improvement in the American GDP growth, positive data from the labour market and investments should still be sufficient to sustain the Fed’s perspectives announced in March.

Brainard’s statements can be interpreted as positive for the dollar. This is because her consequent support for the current monetary path of the Fed proves that the other FOMC members have the similar opinion, except for those extremely dovish. Therefore, if the forthcoming macroeconomic data is positive, the dollar will most likely gain value before the next meeting of the FOMC.

Zloty remains strong

The zloty has been fairly stable. The EUR/PLN is moving near the 4.17 and the USD/PLN went to the area of 3.73. The PLN/HUF has been stable as well and remains near 73.70.

Today, investors will focus on the GDP reading for the first quarter of 2017. According to the Polish Central Statistical Office (GUS), the GDP components continue to indicate a strong increase in household consumption (positive 4.7% YOY, the best result since the end of 2008). Unfortunatelly, they still haven’t showed a rebound in investments (negative 0.4% YOY), which increases the risk of a decrease in the GDP growth (as of 2018), along with a decrease in the 500 plus program effect, as well as in positive trends in the labour market. It’s also worth noting that we’ve been experiencing an increase in supplies for yet another quarter (this component added 0.7 percentage points to the entire result.) However, contribution of export was near zero. This means that Poland’s economic growth is basically being caused only by consumption.

According to Eurostat, Poland’s unemployment rate for April went down to 4.8%, which is its lowest level in history. Neither the GDP data, nor the unemployment rates readings had a significant impact on the zloty. Primarily, because the PLN market is being mainly determined by the global trends. Secondly, the aforementioned data was fairly consistent with the consensus (except for investments).