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Data is getting worse (Daily analysis 31.10.2018)

31 Oct 2018 13:08|Marcin Lipka

The worse than expected publication of PMI from China and the collapse in retail sales in Germany do not support the sentiment. Inflation in the eurozone is better, which may stop the decline of the euro. The zloty is still under pressure. The dollar is getting closer and closer new highs of one and a half years.

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

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Another set of weak data

There is no end to the negative macroeconomic surprises from Asia or the eurozone. China's PMI for the industry fell to 50.2 points, the lowest in two years. The sub-index of new export orders is even worse. It has been steadily declining since August and, according to data published by the Chinese National Bureau of Statistics (NBS), amounted to 46.9 points, i.e. the lowest since January 2016. At the same time, it was one of the weakest readings in the last decade.

The readings from the German economy are just as low. This time, however, it is not about the industry or leading indicators, but about regular data on retail sales. In September, it dropped by 2.6% y/y in real terms. This is the weakest reading since mid-2013. Of course, we can once again look for explanations such as a smaller number of working days (by one compared to September 2017), as well as effects related to unnaturally warm weather (almost 10% y/y drop in sales of footwear and clothing, according to Destatis data).

Unfortunately, these explanations do not change the fact that consumer demand clearly fails. Real sales (including inflation) are also falling in other categories (furniture, sales in shopping malls), while other categories are growing extremely slowly (mail-order sale and online sales by 0.1% y/y; cosmetics and medicines by 0.4% y/y). Apart from the effect of weather or working days, this may suggest that Germany is beginning to be afraid of the economic slowdown and it is simply starting to reduce its spending. For example, relatively similar GDP readings from Austria or Spain may be a consolation, but this is definitely not enough to improve sentiment in the region.

In the morning Eurostat published data on inflation. It was in line with the economists' estimates. Core inflation rose from 0.9% y/y to 1.1% y/y in October, which may stop a deeper decline in the euro. However, part of the growth may be one-off. Analysts of Bloomberg Economics pointed out that the price drop of 16.5% in the education category from Italy is no longer included in the calculations. In the following months, such events may no longer occur, which may probably hold back further increases in core inflation, at least until the end of this year.

As a result, the reasons for the euro's appreciation still appear to be relatively weak. The dollar, on the other hand, is in a relatively comfortable situation and should be supported by a good economic situation in the USA and the prospect of Fed's higher interest rates. If the data from the USA does not fail and the changes in Congress during the elections scheduled for November 6th are not dramatic, a continuation of the downward trend in EUR/USD should also be seen in November.

Lower inflation in Poland

Published by the Polish Central Statistical Office (GUS) data on inflation for October still indicates little pressure on price increases. It amounted to only 1.7% y/y, while consensus fluctuated between 1.8% and 1.9% y/y. According to the incomplete data of the GUS, the core index (excluding fuels and food) remained again below the 1% y/y.

In the context of the zloty, inflation data fulfil the MPC's scenario of moderate price pressure. At the meeting next week, the Council is likely to signal once again that the baseline scenario is no interest rate hikes. This will put pressure on the zloty not only in the case of the main currencies but also, for example, in relation to the forint, which is already around three-month highs to the zloty.

31 Oct 2018 13:08|Marcin Lipka

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.

See also:

30 Oct 2018 16:10

Pressure on euro and zloty may strengthen (Afternoon analysis 30.10.2018)

30 Oct 2018 12:37

Fatal data from eurozone (Daily analysis 30.10.2018)

29 Oct 2018 16:29

Zloty depreciates (Afternoon analysis 29.10.2018)

29 Oct 2018 12:39

Political turmoil (Daily analysis 29.10.2018)

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