Afternoon analysis 12.10.2016

, author:

Bartosz Grejner

An increase in industrial production of the euro zone. The OPEC report for September indicates an increase in production and a larger demand in 2017. The Polish currency continues its weakening.

Industrial production of euro zone is better than expected

The Eurostat published the data regarding industrial production of the euro zone today. It appeared to be better than expected. The index was at the level of 1.6% for nineteen of the euro zone countries and at the level of 1.4% for the entire European Union (there was a 0.7% depreciation in both of these cases in July.) This was a 1.8% increase in year on year interpretation. The reason for this positive reading from August was mostly a high pace of increase in production of durable consumer goods (4.3%), as well as in capital goods (3.5%).

It’s also worth noting that Poland’s position was very good. The pace of increase in Poland’s industrial production was the third highest in the EU. This refers to the month on month, as well as to year on year interpretation. Czech Republic acheived the best result in both of these cases. However, industrial production is historically very volatile (negative 7.6% y/y in July and positive 7.7% y/y in August, for example).

Even though this data is a positive sign for the European economy, as well as for the euro, quotations of the EUR are dependent on speculations regarding rate hikes in the USA, as well as on the oil market events.

OPEC production is growing

The OPEC monthly report from today, shows that the Cartel countries increased their daily oil production in September (to the level of 33.39 million barrels per day). Let’s keep in mind that this happened despite the initial agreement regarding the limit of production, at the level of 32.5-33 million. Moreover, OPEC revised up the oil demand for 2017, from the countries outside of the Cartel (240k barrels per day). This was mainly caused by the new projects, which will be initiated in Russia.

The situation of limiting oil production becomes slightly complicated by countries which started increasing their production (Iran, Iraq, Libya). Today, the Libyan National Oil Corp announced an increase in its production to 540k barrels per day. Their production is to be increased to 900k by the end of the year.

During the 23rd International Energy Congress in Istanbul, The Qatari minister of oil informed of ending the discussion between the OPEC countries and those countries, which are not OPEC members. Statement from the Venezuelan minister Del Pion suggested that the countries from outside of the Cartel did not agree to participate in the agreement regarding production limits. Some of these countries will participate in the OPEC meeting in Vienna, which is scheduled for 28-29 November.

Oil behaved relatively stable and remained near the level from Tuesday. This was until the statement from the OPEC secretary, Mohammed Barkindo (during the IEC in Istanbul). He claimed that for the time being there is no decision whether the OPEC countries will limit their production before the countries which are not OPEC members. This information caused oil prices to drop more than one dollar per barrel.

Weaker day for Polish currency

Today’s publication of the minutes increased the risk aversion towards the emerging market currencies. Therefore, the zloty wore-off against the currency basket. The dollar increased against the zloty by more than 0.7% (currently at 3.90 level). The EUR/PLN reached the level of 4.30.

Tomorrow’s events

This week’s main event is the minutes from the FOMC meeting in September. The markets will most likely continue to analyze the document tomorrow. Three out of ten members voted for rate hikes. Moreover, statements from the other members didn’t show much criticism towards this decision. This could suggest a large chance for rate hikes this year. The probability of hikes in December is currently at the level of 64% (according to the CME Group, based on the federal funds contracts).

At 14.30 (2.30 PM), we will know the data from the American Labor Department regarding export and import prices, as well as weekly jobless claims. In August, the export and import prices were at their lowest level (and negative) since February. The consensus assumes that they will increase above zero, to the level of positive 0.1% and 0.2%, respectively. Jobless claims are expected to reach the level of 254k, against the 249k last week. We need to keep in mind that these levels are near the forty-year minimum. Only a definitely worse reading (approximately 300k) could cause a wear-off of the dollar.

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 the written permission from Sp. z o.o is prohibited.

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