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Afternoon analysis 15.07.2016

, author:

Marcin Lipka

Haldane confirms the necessity of the monetary easing by the Bank of England. The American data are supportive for the hawkish camp. The zloty remains steady against the main currencies.

Today's testimony of the Bank of England's main economist as well as the member of monetary authorities, consisted of a lot of elements that suggested a monetary easing at the beginning of August. Moreover, it also confirmed modifications of monetary policy that were mentioned in the announcement, as well as in the minutes.

Even though Andy Haldane is considered to be more hawkish than the BoE consensus, the statements such as, “the monetary answer should be given quickly, as well as with a proper power,” suggest that the cutting may by larger than 25 base case points. Haldane also used a metaphor regarding the monetary policy, saying that, “I would prefer to take a risk of smashing a walnut with a sledgehammer, rather than digging an escape tunnel from a prison with a spoon.”

Pressure on the pound should appear again, as we emphasized in today's Daily analysis. Martin Weale's testimony on Monday will be significant. In 2014 he voted for rate hikes that eventually did not occur. However, he is considered to be one of the more hawkish BoE representatives. If his remarks are as dovish as remarks of Haldane, they may cause a significant overvalue of the GBP.

Positive data from USA and no larger changes on zloty

This afternoon we received positive data from the USA. It is worth focusing on the data regarding retail sales, excluding fuel and cars. It increased by 0.7% m/m, against the 0.3% m/m consensus. Data regarding industrial production may be interpreted as positive as well. It increased by 0.6% m/m, against the positive 0.3% m/m estimations. Perhaps this is a signal that with a longer slowdown in production that is caused by limits in mining, as well as larger competitiveness of the foreign products, industrial production begins to grow and it will support the GDP growth as well.

Inflation reading is an important element of today's publications from the United States as well. Its base case component (excluding fuel and food) increased by 2.3% y/y, and at the same time it equaled with the highest levels since the 2008 crisis. On the other hand, the consumers sentiments were slightly worse.

In general, we can claim that the American macro data confirmed the business cycle acceleration in the second quarter. Currently, the GDPNow index that measures the GDP based on the current data, indicates a positive 2.3% economic growth for the past three months. Today's data should raise these estimations slightly.

Moreover, the continuously high base case inflation readings are a good argument for the hawkish members of the Federal Reserve. Thus, the data is positive for the American currency. The EUR/USD went below 1.11 this afternoon, although the scale of this move was not strong. Moreover, profitability of the American debt increased by a few base case points.

The trade on the zloty is quite calm. There are only slight changes on the basic PLN-related pairs. We expect Fitch to cut the rating's perspective, but the level of Poland's loan credibility will remain unchanged. However, if this scenario fulfills, it should not cause a strong reaction. It is possible that the main currencies will increase by approximately 0.01-0.02 PLN on Monday.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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