Daily analysis 01.12.2017

01.12.2017 12:49|Bartosz Grejner

Sentiment is worsening in the market due to problems with the tax reform implementation in the US. This also slightly weakened the zloty, despite a better than expected PMI index of industrial activity. The PMI index that appeared to be better than expected and better than preliminary estimates of the eurozone indicated the fastest expansion pace of industrial companies for 17 years.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless otherwise noted.

  • 4:00 p.m.: The US industrial sector ISM index for November (estimates: 58.4 pts.),
  • 5:00 p.m.: Probable time to vote on the US tax reform project.

More positive data from the Polish economy

After higher than expected inflation (2.5% vs. 2.3%) and an upward revision of the economic growth rate in Q3 (4.9% vs. 4.7%), the IHS Markit published better than expected PMI index for the Polish industry in November today. Its value at the 54.2 pts level was higher than last month by 0.8 pts and by 0.2 pts than the market consensus.

November output growth continued to support a significant inflow of new orders, although its growth pace was slightly lower than in the previous two months. The inflation of production costs has accelerated for the fourth month in a row, which caused another significant increase in the prices of industrial products.

However, the zloty's reaction to this data was limited. EUR/PLN quotations rose to nearly 4.21, while they were close to the 4.195 boundary yesterday. The franc and the dollar's quotations in relation to the zloty were also by 1 gr from the last lows. The slightly worse condition on the zloty may have been a result of a global sentiment worsening due to problems in the implementation of the tax reform in the US.

More problems with tax reform

During yesterday's session on the US stock market, further records of the main stock market index were established. The index of the 30 largest companies, Dow Jones, exceeded 24k points increasing by approx. 1.4% yesterday. The increase in valuation was due to raised expectations of the vote on the draft tax reform - even during yesterday's session, the Republican Senator John McCain announced his support for the project, which further strengthened the increases.

However, the next few hours were slightly disappointing. The vote on the reform was postponed to 11.00 a.m. on Friday (Washington time), (5.00 p.m. in CET time) due to senator fears that the reform could lead to an excessive increase in the budget deficit in subsequent years. During the Asian session, we could already see a slight deterioration of sentiment, which was deepened on Friday morning, when the main European stock indexes lost over 1% of their values.

Weaker dollar and pound

The quotations for the main currency pair, the EUR/USD, have increased to approx. 1.194 level today in the morning, the highest since Monday due to increased uncertainty about the tax reform implementation in the US. In the morning, they fell to the 1.190 level - and however around 4.00 p.m. the US data of ISM's industrial sector activity will be published, the reports from the US Senate are likely to have the greatest impact on the dollar. A negative result in the next vote could put additional pressure on the US currency.

In turn, IHS Markit published November's final industrial PMI data for the eurozone today. It rose to 60.1 pts and turned out to be by 0.1 pts higher than preliminary estimates. This index indicates that the industrial sector has been developing at its fastest pace for 17 years. It was also the second-highest level for this index since it was created in 1997. Better than expected data from the eurozone can contribute to improved market sentiment in the following hours, which can also have a positive effect on the Polish currency.

Moreover, an analogical index for British industrial companies turned out to be significantly better than expected. Its increase to 58.2 pts in November was by 1.7 pts higher than expected and indicated that the expansion in this sector was the fastest in 51 months. A clearly higher growth in the industrial sector's activity may support the pound's trading, which has been depreciating in relation to most currencies today. Currently, its quotation is largely dependent on the Brexit bill negotiations, although in the past few days the probability of an agreement between the UK Government and the EU negotiators has increased significantly.

 


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