Daily analysis 19.10.2015

, author:

Marcin Lipka

A wide discussion regarding the data from China and its credibility. The majority of economists surveyed by the Financial Times indicate December as the moment of monetary tightening in the USA. Data from Poland is important for the PLN at the time before the elections.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.00: Industrial production from Poland (estimations: +4.0% y/y).
  • 14.00: Retail sales from Poland (estimations: +1.3% y/y).
  • 20.00: Live interview on Bloomberg Television with John Williams, the chairman of San Francisco Fed.

Chinese data

During the night, the market received a solid portion of data from China. First of all, the GDP reading for the third quarter. According to the official readings the Chinese economy developed at a pace of 6.9% y/y, which is by 0.1% more than the economists' consensus. Additionally, Beijing published estimations of the industrial production and retail sales for September. They were respectively 5.7% y/y and 10.9% y/y. In general, one can assume that these publications were relatively close to the expectations.

However, an intense discussion regarding the credibility of this data continues. Currently, there is less talk about the use of information about electricity consumption and transport, in order to equalize the official readings. Considering that the Chinese economy changed its profile from production to services, the above data can cause commotion instead of benefit.

The economists take note of the matters of the GDP deflator. It is one of the inflation measures, which allows to calculate real growth based on nominal growth. In July, the Financial Times wrote that in the first quarter the GDP deflator was minus 1.2% (by the consumers' inflation in the limits of +1.5%). This meant a decrease in nominal GDP growth to 5.8%. However, in 2011 the Chinese nominal GDP was growing at a pace of 20%, and the pace of the real GDP was 9.5%. Thus, a decrease from 20% to less than 6% is very severe. However, a decrease from 9.5% to 7% is significantly less severe.

Also, today's Wall Street Journal touched the matter of the GDP deflator. In the third quarter, the real increase in the GDP was 6.9% and the nominal 6.2%. During July's press conference of the Chinese Statistical Office, the institution refused to announce the official level of the GDP deflator. There is also no such information in today's announcement.

Irrespective of whether estimations of the data are a result of technical difficulties or deliberate flattening of readings (so that they can fulfil the Chinese government's guidelines), publications in the foreign media may disturb the credibility of the message from China. This can make them even more harmful than a slight departure from the previously assumed targets.

Economists still say “December”

Despite the fact that the market assumes the first increase in interest rates to happen March 2016, 65% of economists surveyed by the Financial Times say that it will happen in December. When it comes to the second hike, the opinions are equally divided between March and June.

If the Fed really raises interest rates in December, the dollar could gain in the short term. However, if the market is convinced to the scenario that there might be a 6-month-break between the first and the second hike, the American currency could begin to gradually wear off. It would happen especially if the macro data from the United States is worse, and it questions the sense of further monetary tightening.

Few words about the foreign market

In the context of the American monetary policy, it is worth noting an interview with John Williams, planned for today at 20.00. The interview will be broadcast live by Bloomberg Television. The San Francisco Fed chairman is close to the consensus and is most likely to sustain the view of raising interest rates in 2015. However, it is his argumentation and evaluation of the economy in the USA that will determine whether the EUR/USD will manage to go below 1.1300, or will the main currency pair remain above this limit.

Data from Poland

The national readings were recently poor. Thus a positive surprise from the Polish data would be required. The consensus of the economists regarding industrial production and retail sales for September, is respectively +3.9% y/y and +1.3% y/y. However, the publication would have to be clearly above expectations in order to bring the EUR/PLN below the limit of 4.22. On the other hand, a small negative surprise combined with the coming elections, may bring the EUR/PLN to the range of 4.24-4.25 per euro.

With the zloty becoming weaker to the euro, it is more and more difficult for the franc to stay in the area of 3.90. Thus, it is possible that in the case of weaker publications from Poland the Swiss currency may remain in the range of 3.90-3.95 for the next few days. Going below 3.90 is possible only when the elections are over and a stable government coalition will be announced.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1350-1.1450 1.1450-1.1550 1.1250-1.1350
Range EUR/PLN 4.2000-4.2400 4.2000-4.2400 4.2000-4.2400
Range USD/PLN 3.6900-3.7300 3.6600-3.7000 3.7300-3.7700
Range CHF/PLN 3.8800-3.9200 3.8800-3.9200 3.8800-3.9200

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.7400-5.7800 5.7200-5.7600 5.7600-5.8000

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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