Mixed data from China (Daily analysis 16.07.2020)

The Chinese economy came as a positive surprise due to the pace of economic growth in Q2, but retail sales continue to decline, indicating potential problems with the recovery path. Increased risk aversion weakens the zloty somewhat: the EUR/PLN is again moving closer to 4.50.

Data from China as a guide for other regions

Even before the European session started, the macroeconomic data from China were published. In Q2, GDP grew by 3.2% y/y and 11.5% q/q, exceeding expectations by 0.8 and 1.9 percentage points respectively.

The Chinese economy was clearly supported by industry, which is also positive news for other regions of the world. However, this good piece of information was overshadowed by the retail sales figures for June, where there was a 1.8% decline month-on-month, against an expected 0.5% growth.

Concerns about private consumption, evidenced by, e.g. retail sales statistics, may introduce slight anxiety about the path of increased activity not only in China but also globally. It will depend, to the greatest extent, on consumer behaviour, and data from China may reinforce the belief that demand will not easily reach its pre-pandemic state.

Fortunately, there are also reports that may modify consumer behaviour, reducing consumer precaution, which would ultimately have a positive impact on this economic growth path. This is the news reported over the past few days about the positive results of the COVID-19 vaccine tests. This information, to a certain point, also maintains a generally positive sentiment in the financial markets.

Changes in the markets - dollar goes up, and zloty goes below in red

The main currency pair, i.e. the EUR/USD, was quoted just below yesterday's closing at midday, but these were minimal changes, and the exchange rate was just below 1.14. The euro remains globally strong, but today the dollar also appreciated in the global market. The US currency was supported by an increase in risk aversion, which followed strong declines in Asian markets and continued on the European markets as well.

These are declines after a series of strong growths, but the increased risk aversion reduced demand for, among other things, the zloty, which decreased in relation to the main currencies today. Around midday, the USD/PLN exchange rate rose from about 3.90 PLN to 3.94, which is still quite low over the past two weeks.

However, the combined continued strong global market position of the euro and a lower risk appetite brings the EUR/PLN quotations back to 4.50 (4.49 around midday) today. Today's developments following the publication of the European Central Bank's monetary policy decisions may slightly increase these fluctuations, but the market is more focused on the Eurogroup meeting starting tomorrow on the 750 billion EUR aid package.