Data from Poland and GB disappoints (daily analysis 18.01.2019)

Macroeconomic data currently have a very limited impact on the pound, although those published today on retail sales will certainly not help. Data from Poland may predict the end of a relatively strong zloty.

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

• 3:05 p.m.: Speech by John Williams, head of the Federal Reserve in the New Year, on the economic outlook and monetary policy,
• 3:15 p.m.: Industrial production in the US in December (estimate: 0.2% mom),
• 4:05 p.m.: University of Michigan Consumer Sentiment Index in January (estimate: 96.8 pts).

EUR/USD stabilizes around 1.14

Optimism on the market. This is how the current sentiment can be summed up. Although it's been almost four weeks now of the government shutdown in the US, the mood on the stock market improved with positive reports on talks concerning trade. The main indices in the US closed yesterday with increases of approx. 0.7%, erasing virtually all the losses incurred since mid-December. Positive sentiment also spilled onto sessions in Asia and Europe, where even before midday the main European indices gained more than 1%. The German DAX exceeded the level of 11,000 points for the first time since 6 December - however, in order to reach the level of what it was exactly one year ago, it would have to further increase about 21%.

Positive sentiment, though for another reason, also affected the pound. The value of the British currency rose sharply yesterday due to the growing chances of a softer Brexit. The GBP/USD rate crossed the psychological limit of 1.30 yesterday for the first time since mid-November. Today we have seen a slight rebound and at midday (CET) the value of the pound was around 1.2950. Macroeconomic data is currently not the most important factor influencing the British currency, but the data published today by the Office of National Statistics (ONS) is unlikely to act as a support. In December, retail sales in the UK rose by 3.0%, 0.6 percentage points below the market consensus. Excluding highly volatile vehicle and fuel sales, it increased by 2.6% - the growth rate was 1.3 percentage points below expectations, which was the lowest since April last year. However, the impact of sales data will be limited, as the market's attention is focused on Prime Minister Theresa May's cross-talks with other parties and her "plan B", to be debated in Parliament on Monday.

Beyond the expected volatility of the pound and the yen, which has been lower due to a lower level of risk aversion, the currency market has been relatively calm today. The main currency pair, i.e. the euro-dollar, have already fluctuated within a narrow range around 1.14 for the consecutive third day. This "stabilization" is affected by opposite factors. On the one hand, we can observe a faster than expected economic slowdown in the eurozone, and on the other hand, a prolonged government shutdown is becoming a burden on the still-high economic growth rate and a very good condition of the US labour market. This unprecedented situation will have an impact on the economy's results for Q1 and perhaps Q2, depending on how long it will last. This limits the already low probability of raising interest rates in the US this year. The Federal Reserve's approach to monetary tightening is now more dependent on the incoming data. As a result, not further than in two months' time, the probability of interest rate increases in the US may fall close to zero, and the Fed may take a pause from monetary tightening.

The end of a good run in Poland

With the omission of a poor reading of PMI in the industrial sector, the Polish economy showed positive, "hard" data, distinguishing itself from the largest European economies. Today, this good streak clearly ended with the publication of the data for December. The growth rate of the average wage in the enterprise sector fell from 7.7% to 6.1% year-on-year, which was 1.2 percentage points lower than the market consensus and a return to the growth rate recently observed in September 2017. The industrial sector disappointed as well this time - production increased by 2.8% year-on-year, compared to 4.7% in November and expectations of 5.1%. Producer inflation (PPI) was at 2.2% compared to December 2017 and was at the lowest level since April 2018.

The slowdown observed in the largest economies of the euro area most probably also hit Poland, and faster than expected. Therefore, the argument in favour of the zloty staying in good condition somewhat weakened today. The Polish currency may gradually depreciate in relation to the major currencies, against which it remained at relatively rates of late. Today, changes were not significant and reflected relatively limited movements on the global market. Data on the Polish economy coming in the following months will be extremely important for the zloty. If the picture of a much faster than expected economic slowdown also in Poland will become more clear, the rate of depreciation of the zloty may accelerate in the following months.