Afternoon analysis 18.10.2016

, author:

Bartosz Grejner

The American CPI inflation data was worse than expected. However, it had a minor impact on the American currency. The zloty is stable against the majority of currencies with the exception of the pound. The British currency is approximately 1% stronger.

Inflation is worse than expected

The Labor Statistic Bureau published the American CPI inflation data today. The base case component (excluding food and energy) increased by 2.2% y/y in September (against 2.3%). The month on month growth was also lower than the consensus (0.1% vs 0.2%), as well as lower than last month’s result (0.3%).

Clothing prices quoted the highest decline in comparison to August (by 0.7%). On the other hand, medical care products increased the most (0.6% m/m). The prices of medical services remained unchanged, in comparison to a 1% growth in August. This contributed the most to the negative reading.

The Federal Reserve focuses more on the PCE, rather than on the CPI. Therefore, it seems that today’s reading will have a limited impact on the dollar. Investors will anticipate its confirmation in the PCE data, which reflect the Fed members expectations regarding inflation.

This doesn’t change the fact that the current CPI result is not strengthening for the argument in favor of rate hikes. The CME estimates that the likelihood of rate hikes in December has decreased to 60.3% after today’s publication. Inflation data didn’t cause significant changes on the dollar as well. The EUR/USD remained near the 1.10 level today.

Mixed data from Poland

The Polish Central Statistical Office (GUS) presented worse than expected data regarding salaries in the corporate sector for September today (3.9% y/y vs 4.6% y/y). This was this index’s worst result since March. On the other hand, the employment index for September was at the level of 3.2% (0.1 percentage point above the consensus). This reading was similar to the reading from July, which is the highest pace in approximately five years.

The above mentioned data didn’t cause significant changes on the zloty, because its level doesn’t impact the likelihood of rate hikes in Poland. The euro costs 4.32 and the franc costs 3.97. Strengthening of the pound had the largest impact on the zloty. The GBP/PLN increased by approximately 1%, to the level of 4.83.

Tomorrow’s events

At 4.00 AM, the National Bureau of Statistics of China will publish data regarding the GDP and industrial production. The market consensus estimates that the GDP growth in the third quarter will be at the level of 6.7% (the same as in April and in June). The Chinese economy has been gradually slowing down since 2010 (at the time, its growth pace was approximately 12%.) On the other hand, the market expects the reading to be at the level of 6.4% (6.3% in August), which would be the highest since March. The Chinese data, which was different than the consensus, usually had an impact on the global sentiment. If the data is worse, it may cause an increase in risk aversion. This usually translates to the sale of more risky assets, including the emerging market currencies (the zloty, for example).

Tomorrow at 14.00 (2.00 PM), GUS will publish the data regarding retail sales, industrial production and the PPI inflation. The data regarding an increase in retail sales from August (5.6%) was the best since March 2014. The market estimates the index to be at the level of 5.9% in September. An increase in industrial production for August was also at its highest level since November 2015 (7.5%), after a surprising decline in July (negative 3.4%). Currently, the market expectations are at the level of 3.5%. The construction and assembly production will also be crucial for investments, as well as for the GDP (estimations: negative 18.8% vs negative 20.5% y/y in August). Negative PPI inflation has been gradually fading out since October 2015. Last month’s data showed a slight deflation (negative 0.1% vs negative 0.2%). Estimations for September are at the level of 0.2%. This would be the highest increase in approximately four years. If this data is near the market consensus, it should strengthen the zloty.

At 14.30 (2.30 PM), we will know the data regarding the American real estate market for September (building permits and initiated home-building). Two recent readings regarding building permits were disappointing. Not only were they below the consensus, but they also had a negative growth pace in month on month interpretation. The market expectations for September are at the level of 1.165 million (a 0.9% m/m increase), which would be the best result since February. When it comes to the initiated home building index, the expectations are at the level of 1.175 million (a 2.5% m/m increase). If both indexes appear better, it would be positive for the American currency. Although both indexes lack approximately one million in comparison to the times from before the American real estate market crisis, their values have increased approximately three times since 2009. Moreover, they continue to grow. Positive data from the American real estate market may increase the likelihood of rate hikes in December, as well as strengthen 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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