Eurozone data (Daily analysis 14.09.2018)

The Turkish central bank surprised, but still, the US inflation readings were the most important. Weak foreign trade data from the eurozone was received. An attempt to drop EUR/PLN below 4.30 failed. The euro exchange rate fluctuates close to the 4.31 PLN boundary.

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.

Reduced trade tensions

Thursday was held central bank meetings. The least excited was the BoE meeting. Although the Bank of England drew attention (in "minutes") to the problems of emerging markets and the Brexit issues, GDP growth in the UK is expected to be around 0.5% QOQ in the Q3, and wages are rising slightly faster than expected. In general, BoE does not seem to leave the slow path of interest rate increases (another one in Q1 or Q2 2019).

Relatively little optimism could have been seen before the ECB meeting. Mario Draghi, however, was quite optimistic, balancing well between the more risky topics (worse conditions for the EM, weaker economic situation in the eurozone, threats from Italy). Inflation and growth forecasts were revised slightly downward for 2018, which was widely expected. When asked about the decline in industrial production in the eurozone (by 0.1% year-on-year in July), Draghi said that it was a return to conditions close to potential growth (for the whole economy) and a strong base effect from the previous year due to the exceptionally good condition of exports.

Today's data on foreign trade clearly failed. The seasonally-adjusted foreign trade surplus for the eurozone as a whole fell to 12.8 billion EUR. This is the worst result in four years and, at the same time, the fourth decline in a row. For comparison, in the years 2015 - Q1 2018 the surplus remained in the range of 18-24 billion. This may have a negative impact on Q3 GDP data in the eurozone if the data does not improve dramatically.

Rate hikes in Turkey

It is hard to understand the actions of the Turkish authorities and their cooperation with the central bank. Yesterday's increase in interest rates by TCMB exceeded market expectations (interest rates at the level of 24%, increase by 6.25 percentage points). The TCMB tightened its monetary policy despite the explicit opposition of President Erdogan. This could have given the TCMB a little bit of independence and hope to fight inflation.

At the same time, the authorities are trying to limit the share of foreign currencies in domestic transactions. This is manifested by the introduction of a ban on the collection of rents in foreign currency. This is a response to the dissatisfaction of entrepreneurs who have to pay rent in foreign currencies in shopping malls. However, the introduction of restrictions will not improve the fate of entrepreneurs. Their rent will probably be indexed by inflation (which will soon exceed 20%) and new contracts will be concluded with a security buffer to limit hypothetical losses. It is also likely that rents received will be quickly converted into euro or dollar, as few foreign entrepreneurs will not want to be exposed to such an unstable currency.

In the context of the rate hike, the President has already referred to this fact today. At a meeting with representatives of the ruling ACP party, he said, according to Bloomberg, that he was "currently in a stage of patience, but his patience is limited", referring to the increase in interest rates. He also repeated that, in his view, higher interest rates would not help to reduce inflation. It seems that the chaos in Turkey may translate into the condition of the country - not only in the coming months but also in the years, significantly weakening potential economic growth.

Weaker dollar

The rebound in the Turkish lira and a certain easing of the trade dispute between China and the US contributed to the reduction of pressure on emerging market currencies and the weaker dollar. The US currency also depreciated due to a lower than expected reading of core inflation from the USA (2.2% YOY vs. 2.4% YOY consensus among economists) for August. However, the CPI fell mainly because of a surprisingly strong decline in clothing (1.6% month-on-month), no change in the prices of new cars, and a drop in medical services (by 0.2% month-on-month). Probably, all these decreases are of a one-off nature and inflation may accelerate in the following months. Therefore, it still seems that the dollar should be supported by both macro readings from the USA and the activities of the Federal Reserve.

Zloty still stable

The zloty remains stable. Yesterday's attempt to drop EUR/PLN below 4.30 failed. The franc quotations also remain relatively high (above 3.80 PLN). It seems that the zloty reacted relatively mildly to external threats.

Today's Eurostat data on wages in Poland (growth by 6.2% year-on-year in the Q2) should not cause changes in the zloty. Wage growth can still be regarded as moderate in Poland, especially considering the increases in other countries of the region (Czech Republic and Hungary, 10% each) or Romania (over 15%).