Subdued Market Reaction to US Inflation, Eurozone GDP Lags

The main event of the day and the week was the announcement of American inflation. In addition, we received a series of GDP readings from European economies. The zloty is once again at key levels.

The damned triple has broken

Data on inflation in the US – despite being anticipated as strongly as Iran’s response to Israel’s actions – ultimately did not captivate investors’ hearts. The main reading turned out to be lower than analysts’ expectations, and it finally managed to break the cursed front trio (which amounted to 2.9%). However, reactions on the charts show that investors, especially after yesterday’s PPI, had a taste for much more than they got. On the eurodollar, we observed a fluctuation in one direction, a fluctuation in the other, only to eventually return to the starting point. After the dust settled, the rate is more likely to think about a downturn, which confirms the thesis of a slight disappointment. This is also a weaker scenario for the zloty, which, having once again reached important levels, will probably switch to defensive mode.

No madness abounds

Additionally, today Eurostat collected all GDP dynamics readings published so far for the second quarter of this year. What immediately catches the eye is the obvious turtle race. Only five economies managed to hit at least 2%, with only two of them in the eurozone. This is exactly the same number that achieved a negative result, with all countries in this cohort sharing a common currency. Of the large eurozone economies, only Spain has a reason to celebrate, managing to generate growth at 2.9%. On the other pole, of course, is Germany, which is again below par. Collective results are 0.6% YOY for euro countries and 0.8% for the entire Union. For us, the positive is undoubtedly the fact that we are at the forefront of this poor competition, with a result of 4%. A few days ago, Prime Minister Tusk was complaining that without the help of the MPC (Monetary Policy Council), we would not be able to “implement the ambitious task of having one of the biggest growths in Europe”.

Where does this result come from?

This 4% is a result after the so-called seasonal adjustments, the figure without cleansing is 3.2%. And this measure seems particularly interesting today. Analysts expected the economy to grow by 2.8%, which means an error of 0.4 p.p. This is a lot, it is rare for analysts to be wrong so massively. This error comes mainly from the changes introduced by statistical centres in their calculation methodology. The result is a revision of the results for the last 9 quarters.

However, there’s a fly in the ointment. The main driving forces of our economy turned out to be wage increases and the fiscal impulse. The former factor will be more of an anchor than fuel in the long run. The latter is a shortcut that is impossible to maintain in view of excessive deficit procedures. So, it’s not as bad as everyone thought not long ago, but I would advise caution against over-optimism.

Author: Krzysztof Adamczak, currency analyst at Walutomat.pl