Daily analysis 31.08.2017

Mixed data from the eurozone does not cause significant changes to the main currency pair. Important inflation readings from the US, although the market probably is waiting for Friday's publication of the Labor Department. The zloty remains stable. The breakdown of Polish GDP growth in Q2 was very weak.

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

• 2.00 p.m.: Preliminary inflation data from Poland (estimates: -0.1% MOM and 1.8% YOY),
• 2.30 p.m.: The US income and spending (estimates: +0.3% MOM and +0.4% MOM respectively),
• 2.30 p.m.: PCE inflation in the US (estimates: 1.4% YOY and 0.1% MOM, in base term also 0.1% MOM and 1.4% YOY),
• 2.30 p.m.: Weekly data on new jobless claims in the US (estimates: 238k).

Mixed data from the eurozone

The beginning of the European session on Forex was influenced by yesterday's US readings. The upward revision of US GDP for the second quarter (from 2.7% to 3.0%), combined with solid ADP publication on new work places in the private sector (237k vs 185k in consensus), brought the EUR/USD pair below the 1.900 boundary and slightly increased yields on US Treasury bonds.

Before midday, investors' attention focused on the eurozone's readings. On the one hand, the higher inflation level of the single currency area (1.5% YOY vs 1.4% YOY) is positive for the euro. On the other hand, the core component remained at 1.2% YOY, showing that the growth rate of prices excluding fuel and food has not accelerated compared to June. After this publication, its positive impact on the EUR/USD seems, therefore, to be limited.

A few signs of optimism, in the context of the euro, have flown from the EU labour market. Although the unemployment rate remained at 9.1% (according to consensus), however, it is clear that some of the largest economies in the European Community are experiencing negative trends. Unemployment in France (seasonally adjusted) increased by 0.2 of a percentage point in July and reached 9.8%. It is only 0.1 of a percentage point less than a year ago, although across the euro area the percentage of job seekers to the participation decreased by 0.9 of a percentage point for a year (from 10% to 9.1%). Other disturbing trends are observed in Italy. Unemployment in this country increased by 0.1 of a percentage point to 11.3% and it is only 0.2 of a percentage point lower than in the previous year. If the situation in the labour market does not improve in these two countries, the recovery in the entire single currency area may be questioned in the coming quarters.

US inflation

In the afternoon, for the dollar the most important publication will be US readings on PCE inflation. This is the Federal Reserve's preferred measure of price changes in the US economy. Expectations of economists' surveyed by Bloomberg show the PCE inflation depreciation to 1.4% YOY. However, it is worth noting that some economists (about 30%) assume that the PCE price index excluding fuels and food will remain at 1.5% YOY. It seems that reaching the latter would help the US currency.

A reading lower than consensus is not expected by any economist, therefore, its appearance could clearly weaken the dollar. Opportunities for such a low core PCE price index (1.3% YOY) are limited as last July we had a relatively low core index. As a result, it seems likely that the publication will exceed the consensus and would not be below the median of economists' expectations.

GDP components below expectations

In the morning, The Polish Central Statistical Office (GUS) confirmed the first GDP estimates for the first quarter. Polish economy grew at a rate of 3.9% YOY. However, that is it in the case of positive data. First of all, we were dealing with further acceleration of household consumption. It rose at 4.9% pace in the second quarter, which was the highest value since the end of 2008. Maintaining such an outcome is unlikely as the effects of the Family 500+ child benefit program will begin to extinguish. Moreover, ahead of us there is a reduction in the retirement age, which may also reduce the consumption's contribution to GDP.

The second negative element was the investment data. Gross fixed capital formation added 0.1 percentage point to GDP, meaning prolonged investment stagnation. Again, we were dealing with a very strong increase in stockpiles (they added 1.9 percentage points to GDP). This component cannot grow indefinitely because in the longer period its contribution to GDP should strive to zero. Negative contribution to GDP had net exports (1.5 points). In conclusion, it can be stated that the national economy rises at the maximum turnover of one engine (consumption), the investment engine is off, and net exports is on a "reverse".

In the afternoon, data on Polish inflation will be released. However, there is a relatively small chance that it will change the zloty's valuation even if it differs slightly from the consensus (1.8% YOY). Much more important is the publication of US PCE, which if it exceeds expectations may cause the USD/PLN pair to go above 3.60 boundary.