Afternoon analysis 14.11.2016

Industrial production from the euro zone is higher than expected. The Polish currency was not supported by positive data regarding the current account. The zloty remains under the influence of a negative sentiment towards the emerging market currencies.

Relatively positive data from Eurostat

Today, Eurostat informed that the euro zone’s industrial production increased by 1.2% y/y in September (vs the expected 1.0%). Even though this index went down by 0.8% in comparison to its result from August, this was still above the expected negative 1.0%. Each component in the month on month interpretation was at a negative level in September. The total decrease in industrial production was mostly caused by a 5.6% decrease in durable consumer goods production (vs positive 4.8% in August).

The situation was slightly better in year on year interpretation. However, durable consumer goods production was negative as well (negative 0.2% vs positive 4.8% in August). The other components were at a positive level. The largest increase was quoted in the case of short-lived goods (positive 1.9% y/y). The largest year on year growth was quoted in Lithuania (7.9%), Slovenia (7.4%) and in Estonia (6.5%). On the other hand, the production decreased the most in Denmark (negative 3.2%), France (negative 1.0%) and in Ireland (negative 0.9%).

The industrial production has always been relatively volatile, especially in the month on month interpretation. However, we have been observing its positive tendency in 2016, in which only two y/y readings were negative (January and August), whereas in 2012 and for the majority of 2013 the readings were negative constantly. If we take the beginning of 2010 as a base, we will observe increase tendency of industrial production within the euro zone, as well as in the entire EU, since March 2013. Even though the growths are not large, the tendency is positive for the EU economies, as well as for the euro.

Zloty is near its peaks

The zloty remains weak, just as the other emerging market currencies. The NBP published the data regarding the current account, which remained at a negative level (negative 999 million euro). Only the services balance was positive. This data is similar to the data from August (negative 1007 million euro). However, this is still below the market expectations (negative 604 million euro). In September, import was increasing faster than export (5.8% vs 4.1%). The trade balance was negative (negative 210 million euro vs positive 47 million euro in September 2015).

Today’s Eurostar report showed that the Polish industrial production went down by 0.2% m/m in September (vs positive 2.1% in August). This was higher than the EU average (negative 0.7%). In year on year interpretation, a 3.2% increase was quoted *vs 5.2% the month before). This was also above the EU average (positive 1.2%).

The reaction of the Polish currency to the above data was relatively limited. Investors continue to analyze the American presidential elections and their significance for the American economy, as well as for the global economy. The markets are dominated by an increased aversion towards the emerging market currencies, including the zloty. This is mostly related to an increasing profitability of the American treasury bonds. Profitability of the thirty-year bond reached the level of 3% today, for the first time in approximately one year. Currently, the likelihood of rate hikes in December is at the level of approximately 86% (10% more than before the elections). These calculations are based on the Fed rate contracts.

Tomorrow’s events

Tomorrow we will receive a large portion of macroeconomic data. Therefore, it’s possible that currencies will become volatile. At 8.00 AM, we will know the initial Destatis data regarding the GDP growth for the third quarter in the German economy. After the 3.1% y/y growth in the second quarter, the market expects that the reading will be at the level of 1.8% (and 0.3% q/q vs 0.4% q/q in the second quarter). The recent positive data for the third quarter (PMI, Zew, Sentix, GfK) increases the likelihood that the reading of the German GDP should not be disappointing.

At 10.30 AM, the British Office for National Statistics will publish the data regarding the CPI inflation for October. The market expects that there will be a 1.1% y/y and 0.3% m/m reading. The CPI inflation in year on year interpretation has been gradually growing since November 2015 (1.0% in September). Increasing inflation may support the weak British currency. However, this may be negative for the British consumption in the long-term, by limiting its growth.

At 11.00 AM, the ZEW Institute will publish the economic sentiment index in November for Germany, as well as for the euro zone. The market expects that there will be an 8.1 and 14.3 reading, respectively. The ZEW sentiment has been in depreciation trend since the first half of 2015 in both cases. It reached negative values in July as well. An improvement in sentiment which was indicated by other indexes (GfK, Sentix, Ifo) may suggest that the ZEW index will be positive as well. The ZEW data has always had a significant impact on the euro. However, this should be limited in the current global sentiment.

At 10.00, the Polish Central Statistical Office will publish the data regarding GDP growth in the third quarter. The market expects that there will be a 2.9% growth, against a 3.1% growth in the previous quarter. The market consensus is at the same time the mid-value of the recent NBP projection. This may appear even lower than expected, due to low level of investments. If the pace is worse than expected, this may increase the zloty’s overvalue.

One hour before the opening of the New York stock market, the American Census Bureau will publish the data regarding retail sales for October. After two consecutive months of negative levels, this index ended with a 0.4% m/m result in September. This index also give investors the idea of the consumption level in the economy, which is one of the main GDP components. The market expects that the reading will remain at the level of 0.5%. Due to the current fluctuations of the dollar, which are caused by the election of the new American president, a significantly better result may strengthen the dollar. However, a significantly weaker result may wear-off the dollar. Nevertheless, this impact will be limited, because the market is currently focused on potential effects of Trump’s policy on the economy.