Afternoon analysis 07.07.2016

The chances that payrolls will return above 150k, are increased by a slightly higher than expected ADP reading, as well as lower jobless claims readings. The ECB minutes indicates the bank's fear of Brexit. The zloty sustains the majority of its morning growth.

New positive data from USA

In the previous analysis, we wrote about positive data from the American services sector (ISM). We received new ADP readings, as well as new jobless claims readings from the USA this afternoon. Both of these publications show that condition of the labor market in the USA remains positive.

According to ADP, the number of new workplaces in private sector increased by 172k in June. This result is by 12k better than economists that were surveyed by Bloomberg expected. The May data was revised slightly down (from 173k to 168k). This publication confirmed what we were suggesting suggesting since the previous payrolls. It was that the recent data from the Labor Department are most likely to be a statistical disturbance, and the American economy is not experiencing a clear slowdown of employment.

The new report about jobless claims was very positive as well. They went down to 254k, and they are only a few thousands higher than their forty-year minimum. If we combine low readings of jobless claims with the ADP data, the ISM employment subindex, and continuously high amount of job offers, we may come to a conclusion that tomorrow's payrolls will clearly be better than estimations. This would probably support the American dollar.

A reaction of profitability of the American debt is worth noting as well. A few base-case-points increase on two-year as well as ten-year treasury bonds is not spectacular, considering their recent declines. However, it may suggest that decrease pressure on profitability is beginning to exhaust. Moreover, some of investors might have overestimated a negative impact of Brexit on future inflation, as well as the level of interest rates that will be established by the Federal Reserve.

ECB anxieties regarding Brexit. Steady zloty

Currently the ECB minutes do not cause too much emotion. This is because the chances for a clearer change in the monetary policy of the euro zone are limited. However, the market focused on what did the officials say about hypothetical Brexit.

Minutes show that there was a general consent, that if the United Kingdom leaves the European Union, “the negative consequences for the euro zone may be strong, as well as difficult to foresee, and they may be experienced in many ways, including foreign trade, as well as financial markets.” However, it is interesting that that the ECB representatives took note that anxieties regarding Brexit decreased shortly before the meeting (the 2nd of June).

Situation on the zloty remains rather stable in the afternoon. The euro costs approximately 4.42-4.43, and the dollar is slightly below the 4.00 PLN level. The American sessions started with growths. Investors probably expect quite positive readings from the labor market tomorrow. At the same time, they do not expect a quick return to the discussion regarding rate hikes. This should maintain a relatively positive sentiment in the forthcoming hours.