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Afternoon analysis 24.11.2016

, author:

Bartosz Grejner

Positive sentiments among German consumers and entrepreneurs. The Polish currency is in a slightly better condition today.

German consumer sentiment is above expectations

Today’s GfK report shows that consumer sentiment for December remains at a high level. The Germans’ expectations regarding their future salaries decreased slightly. However, expectations towards German economy, as well as shopping propensity increased. The general index increased to the level of 9.8, which was higher than the market consensus (9.7).

Consumer expectations towards their future income decreased from 44.8 to 44.5 in Month over Month interpretation. Moreover, this index increased from 44.4 in Year over Year interpretation. A decrease in household purchase power might have been caused by increasing inflation, which reached the its highest level in two years in October (0.8%). Higher prices limit purchase power. Therefore, higher-then-expected inflation slightly reduces expectations towards the future income.

Expectations regarding the condition of the German economy have increased for the second consecutive time. This subindex went up by 2.3 points, to 15.3 points. This means that this reading was by 20 points higher in Year over Year interpretation. Shopping propensity increased by 1.3 points MoM (to 51.2) and by 2.3 points YoY. This growth might have been caused by relatively large decrease in saving propensity. Saving doesn’t seem an attractive option for consumers. Therefore, they show a larger shopping propensity.

MPC’s minutes with a minor impact on zloty

Today, the National Bank of Poland published the minutes from the previous Monetary Policy Council’s meeting (November 9th). Let’s keep in mind that this meeting was held before the publication of the GDP growth for the third quarter, which was worse than expected (2.5% vs 2.9%). The MPC took note of a stable economic growth in Poland. However, it also focused on negative data regarding industrial production and retail sales in the third quarter, which suggested a wear-off of the GDP dynamics in the fourth quarter. The meeting participants also mentioned of decreasing construction production, which was under the influence of decreasing investments.

The MPC claims that economic growth is still supported by consumer demand, which remains stable. This is because of an improving situation on the labor market, positive household sentiment and 500+ program. According to the MPC members, after a slightly worse economic growth in the fourth quarter of 2016, its pace should increase in the forthcoming quarters. This will be a result of an increase in investments, which would be caused by a larger absorption of the EU funds.

Interest rates remained unchanged. The MPC explained this with the need to support balanced development path of the Polish economy, as well as to keep macroeconomic balance. The majority of the Council members indicated gradual inflation growth as a main argument in favor of leaving interest rates unchanged. Moreover, the current level of interest rates should support household savings.

The zloty wore-off before noon. However, its quotations have stabilized in the second part of the day. Today is Thanksgiving Day in the USA and the New York stock market is closed. Therefore, moves on the dollar, which have recently been determining the behavior of global currencies, were slightly smaller. However, we continue to see the zloty becoming slightly stronger against the Hungarian forint. This may suggest that the zloty, as well as profitability of the Polish bonds, are becoming attractive for foreign investors.

Tomorrow’s events

Tomorrow at 10.00 AM, the Polish Central Statistical Office will publish the data regarding the unemployment rate for October. This index has been gradually decreasing since February 2013 (14.4%) and reached the level of 8.3% in September. Therefore, the market expects it to reach the level of 8.2% in October. This would be positive data for the Polish economy, as well as for the Polish currency. However, taking into consideration the current depreciation trend of the zloty, negative data may have a larger impact on the Polish currency, rather than positive data.

At 10.30 AM, the British Office for National Statistics will present the data regarding the GDP growth for the third quarter. We need to keep in mind that the British Minister of Finance, Philip Hammond decreased forecasts regarding economic growth in 2017, from 2.2% (forecasts from March) to 1.4%. The budget deficit for the next five years is to be increased. Hammond claimed in his first announcement since his nomination that worse forecasts are related to a larger economic uncertainty, as well as to a weaker pound.

Moreover, due to the decision regarding exiting the European Union, the United Kingdom currently has a lower potential of balanced economic growth. The market consensus assumes that the GDP growth will be at the level of 2.3% YoY and 0.5% QoQ (same as in the initial reading from the end of October.) This means that there will be no changes in comparison to the second quarter. Taking into consideration that the current global sentiment is determined by the American currency, as well as negative perspectives for the UK’s economic growth next year, the GDP growth reading may cause relatively large fluctuations on the pound, if it’s significantly inconsistent with expectations.

At 3.45 PM, Markit IHS will publish the American services PMI for November. Recently, this index has been increasing relatively rapidly. In August it was at the level of 51, only to reach the level of 54.8 in October, which was its best result since November 2015. This is also the same as the market consensus for this month. Yesterday, the American industrial PMI (provided by Markit as well) was better than expected and increased to the level of 53.9, which is its highest since October 2015. Even though investors usually focus more on the American ISM readings, next positive PMI reading would be an argument for the dollar’s growth.


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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