Afternoon analysis 14.10.2016:
Retail sales go up according to expectations, but sales of the control group show weak data. Poor Polish current account data have little impact on PLN.
Mixed data published by the US Census Bureau
Retail sales in the US increased in September by 0.6% compared with a decline of 0.2% in August. The core index (excluding automobiles) was at 0.5% - slightly above the market expectations of 0.4%. It was the biggest increase since June in both cases. Theoretically, it’s good news for the dollar.
Theoretically, because control retail sales increased below the median of expectations (+0.4%) by 0.1% MoM, after two consecutive months of slowing down. However, it looks even worse when you look at it on a year-over-year basis – control retail sales rose merely 2.5% which was the slowest gain since November 2015. Control retail sales (which excludes such categories as cars, gasoline stations, building materials) is important as it’s used to calculate the gross domestic product.
Today’s reading below expectations can gives credence to the fact that GDP increase could be weaker than the current projections. Atlanta’s Fed GDPNow projections point to a 2.1% Q3 gain. The lower than expected gain in GDP would suggest a relatively lower inflation growth, which in turn could weaken the dollar in the long run. After the report’s publication EUR/USD still oscillates around the 1.10 level.
A weaker current account of Poland
At 14.00 the Polish central bank (Narodowy Bank Polski) shared data about the current account. We should remind that a month ago they were well below expectations: -€800m vs. -€439m analysts’ median. The market expected a reading around -€319 m, but once again the C/A failed to meet the expectations with a reading of -€1047m. That was the worst C/A level since August 2015.
Just as we mentioned in our morning comment, the Polish currency (PLN) moves in a very narrow range in the last few days. The reaction on its quotations was relatively calm, though. It was when the data from the US came up that the zloty start to be a little bit more volatile. The USD/PLN pair stood out, however we’ve been noticing it was more volatile due to arriving data from the US economy and speculation about rate increase in the US as well.
Fed Chief Janet Yellen’s 19.30 (GMT+2) speech could still affect the zloty today. We don’t expect Yellen to be hawkish. If she’s more dovish (than usual), we could see Zloty around the 3.87 – 3.88 range in relation to the Dollar.
An hour before the bell rings on the US stock exchange, we’ll get to know a reading of NY Empire State Manufacturing Index. Manufacturing has been slacking a bit in relations to other sectors (production- and labor-wise), which has been confirmed by data so far. July’s and August’s readings of the aforementioned index were both negative and below market expectations. Median of analysts’ expectations for September point to a 1.00 gain (vs. -1.99 in August).
At 15.15 Fed will publish the industrial production data from September. After it rose in June and July respectively by 0.4% and 0.6% MoM, the August reading showed a 0.4% decrease. Industrial production data is quite volatile historically, so its impact is limited in the long run. However, a reading that is significantly below market expectations could cause a slight decrease in dollar’s value in the short term and negatively impact Q3 GDP growth projections as well.
The European Central Bank’s interest rates decision and, in particular, the President Mario Draghi’s press conference that follows, will probably be the most important events during the next week. Recently there have been a lot of information coming in from the news agencies (e.g. Reuters) claiming that QE tapering was meant to be discussed. The rising emotions muted though, after ECB’s minutes were published (with no trace of QE tapering). However, all the recent talk and media frenzy about QE cause investors to await Draghi’s speech with particular interest.
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