Daily analysis 19.10.2016

, author:

Marcin Lipka

The Chinese data wasn’t surprising. The pound’s recent growths have been sustained by positive readings from the British market. The market anticipates the ECB meeting. The zloty remains weak. The Polish data regarding industrial production and retail sales is in the center of attention.

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: positive 3.5% y/y).
  • 14.00: Construction and assembly production from Poland (estimations: negative 18.8% y/y).
  • 14.00: Retail sales from Poland (estimations: positive 5.9% y/y).
  • 14.30: Initiated investments in the American real estate market (estimations: 1.18 million), building permits (estimations: 1.17 million).

Labor market data doesn’t show a negative impact of Brexit

The British labor market data barely show any negative signals. Over the past three months, the employment level increased by more than 100k in comparison to the period between March and May 2016. Moreover, the estimated growth was at the level of 75k. Increase in salaries was near the consensus and reached the level of 2.3% y/y.

The unemployment index remained at the level of 4.9%. Jobless claims were positive as well, with an increase at the level of just 700 against estimated 3k. It’s also worth noticing the general strength of the British labor market.

According to the official data from the Office of National Statistics (ONS), relation between the employment and the working age population is at its highest level since 1971 (the year in which this data was published for the first time). Unemployment rate alone is near its record low level. Therefore, the British labor market does not suggest any economic slowdown.

Taking into consideration the recent pound’s quotations, the British currency was relatively strong this morning (more than 1.23 dollars). Tomorrow, the market will focus on the retail sales data. However, the Brexit-related matters remain the most significant. This is because they may cause sudden changes on the pound, especially if it appears that the British government is easing its approach towards “hard Brexit”. However, this scenario remains unlikely for the time being.

Chinese data and ECB expectations

The Chinese data wasn’t much exciting. The GDP growth, as well as the industrial production were both near the market consensus. However, we need to keep in mind that the 2016 economic growth is strongly stimulated by the local companies. This is because their investments are growing at a pace of approximately 20% y/y. On the other hand, growth pace of private companies is at the level of positive 2.5%.

The market is probably already anticipating the ECB meeting tomorrow. It’s difficult to say whether the QE extension will occur tomorrow, or in will it happen in December. However, the part of the market which expects a hawkish announcement, may be disappointed. Therefore, a relatively dovish message is the base case scenario (Mario Draghi may confirm the discussion regarding the change in parameters of assets purchase, for example.) This scenario should be negative for the euro. However, it should also be positive for the currencies from our region, including the zloty.

Zloty remains under pressure

The data regarding retail sales and industrial production from the Polish Central Statistical Office (GUS) should be the most significant information today. It’s also worth keeping in mind the construction and assembly data. Recently, this index was decreasing at a pace of 20% y/y. If this depreciation scale is sustained, the GDP for the third quarter in year on year relation may reach the area of 2.5%.

GUS published an interesting information today. The GDP for 2015 was revised up from 3.6% to 3.9%. According to the Polish Press Agency, the GUS Accounts Department vice-chair, Olga Leszczyńska-Luberek said that the foreign trade impact was revised from positive 0.3 percentage points to positive 0.6 percentage points.

This is a positive information, because it shows an increase in competitiveness of the Polish economy in 2015. On the other hand, taking into consideration the current account data, the risk that this year’s export contribution will be near 0%. This also translates to an increasing likelihood that unless there is a sudden rebound in investments, the GDP growth in 2016 will be near the level of 2%.

The situation on the zloty may be nervous this afternoon. This is especially taking into consideration that industrial production data, as well as retail sales data will be weak and construction and assembly production remains near the level of negative 20% y/y. This could cause the PLN to wear-off against the main currencies by approximately 0.01-0.02 PLN.

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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