Afternoon analysis 24.10.2016

The CBI survey shows that the pound has a negative impact on the condition of the British industrial companies. The zloty is stronger today and it’s working-off a portion of its losses from last week.

Mixed data from the United Kingdom

The CBI survey regarding trends within the industrial sector shows that the industrial production, as well as its orders, increased in the past quarter. Moreover, the export was the strongest in two-and-a-half years. Even though the export orders index increased for the first time in one year, it is expected to grow in the near future. However, approximately 25% of entrepreneurs think that one of the main dangers of a further increase is the limited supply of a qualified workforce. This is one of the main possible negative effects of Brexit and it may limit the production within the British economy in the forthcoming months.

The balance of export orders increased to positive 8%, which is its highest level since April 2014. When it comes to the total amount of orders, 29% of companies quoted an increase, while 20% of companies quoted a decrease. This gives a balance of positive 9%. However, the employment index was worse for entrepreneurs. There were 23% of companies that quoted an increase and 28% quoted a decrease. The negative 5% balance is this index’s worst level since April 2010. However, it’s still above the long-term average (negative 9%).

Due to the anxieties regarding Brexit (and flash crash) the pound is currently near its thirty-year minimum against the dollar. Theoretically, this is good news for export. The British products are now more competitive abroad. The most recent statements from the British officials suggest that they don’t have a problem with a weaker pound, because they are counting that it will support export.

Today’s survey from CBI shows that the pound’s depreciation has a negative impact on 47% of industrial companies in the United Kingdom. It has a positive impact on 32% of companies, and 19% claimed that they found the wear-off of the British currency neutral. Therefore, a weaker pound is negative for British companies and not only can its further depreciation be negative for companies, but also for the entire British economy. The economic slowdown combined with the forecasts from the Bank of England (regarding increasing inflation), may cause stagflation. The British economy may find it difficult to exit this stagflation, especially taking Brexit into consideration.

Zloty is strengthening

The Polish currency had continued its appreciation from this morning. The zloty is gaining the most against the dollar (approximately 0.5% at 3.45 PM), which costs 3.96 PLN. Also at 3.45 PM, Markit published the PMI data for the American industry. The PMI was at the level of 53.2 and appeared to be better than the 51.5 consensus. At the same time, this was its best result since October 2015.

This information is potentially positive for the dollar, as well as for the zloty. Even though the American monetary authorities focus more on the ISM readings, the Markit data gives investors clues on the new ISM data, which will be published in two weeks. After the overvaluation from last week, the euro was at the level of 4.31 PLN today. The GBP/PLN went down (however, there was no global wear-off of the pound) and the British currency was at the level of approximately 4.85 PLN.

Tomorrow’s events

At 10.00 AM, the Ifo institute will publish the economic sentiment in Germany index for September. This is one of the main indicators of the condition of the German economy. The market consensus assumes that the reading will be at the level of 109.5 (the same as it was in August). This was this index’s highest level since May 2014. If the reading is above the consensus, this would be positive for the euro. This could mean the EUR/USD would go above the 1.09 level.

At 14.00 (2.00 PM), the Polish Central Statistical Office (GUS) will publish the unemployment rate data. The market consensus assumes this index to go down from 8.5% (August) to 8.4% (September). A depreciation trend has been observed for a while now. The unemployment rate has been decreasing since March 2013. At that time, this index was at the level of 14.3%. Its wider depreciation has been observed since February 2004 (20.6%). Therefore, even though this data is relatively significant for the economic condition, it shouldn’t impact the behavior of the Polish currency. The zloty could only be weakened by a significantly negative result.

At 16.00 (4.00 PM), the Conference Board will publish the American consumer trust index for October. The market expectations are at the level of 101.5 (against 104.1 in September). However, we need to keep in mind that this index is at the highest level since 2007 (the period before the real estate market crisis). Since the beginning of 2009, we have been quoting a systematic increase in this index (the 25 level in January 2009). If the reading is better than expected, the dollar would continue to strengthen. This is because this index is one of the main indicators of consumer expenses, which is crucial for the country’s general economic activity.


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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