Daily analysis 02.11.2017

02.11.2017 12:18|Marcin Lipka

A lot of impulses for the EUR/USD, but the main currency pair remained within a limited volatility range. The Bank of England's decision may be significant for the pound. The zloty remained stable. PMI in Poland slightly below the market consensus, but price pressure is increasing. The EUR/PLN between 4.23 and 4.24.

Key macro data (CET time - Central European). Estimates of macro data are based on Bloomberg data unless otherwise noted.

  • 1:00 p.m.: Publication of the Bank of England's decision on interest rates (estimate: increase by 0.25 percentage points to 0.5%). Vote distribution publication on interest rate decisions and minutes from November's BoE meeting,
  • 1:30 p.m.: Mark Carney, Governor of the Bank of England, press conference.

A number of impulses in a limited movement range

Wednesday was rich in important macroeconomic publications from the US. ADP data showed a faster than expected increase in private sector employment (235k vs. 200k). However, the industrial ISM index was slightly below the consensus (58.7 pts. vs. 59.5 pts.), but maintenance close to the 60 level it should still be considered a very good result. The dollar was slightly stronger after this information, but it was generally visible that there will be no serious movements at the time.

In addition, the Wall Street Journal announced that Jerome Powell had already been informed by the White House about his appointment as President of the Federal Reserve in the evening. This, in turn, slightly depreciated the USD, but, as in the case of macroeconomic data, movements were limited. No significant information has been learned from the statement after the meeting of the Federal Reserve, which maintained the prospect of further to moderate GDP growth and the limited impact of hurricanes on the US economy.

The beginning of today's session is also characterised by limited movements. The final PMI indexes from the eurozone's industry sector were preliminary readings and achieved the same result (58.5 pts). In the data's commentary by Chris Williamson, the head economist at IHS Markit wrote that this year's industrial condition has been the best since 2000. He also drew attention to the strong labour market and growing orders in export. However, this information was also ignored mainly because it has been known for more than a week.

As the result, the scenario, about which we wrote on Monday, has been implemented. Too many market impulses and speculations about tax system reform in the US or Friday's data from the American labour market may cause that market to wait until the end of the week before moving rapidly. However, if the tax reform plan was revealed over the coming hours (cutting the fiscal burden on enterprises and households in line with earlier announcements) and tomorrow's publication by the Department of Labour showed a wage growth close to 3% the dollar should appreciate and the EUR/USD should be significantly depreciated.

The Bank of England's decision

Today at 1.00 p.m., the Bank of England will probably decide to raise interest rates. This will be the first monetary policy tightening in a decade. However, it seems that this is not an increase in the cost of credit by 0.25 percentage points up to 0.5%. This will be the most important, but the general tone of the monetary authorities is toward further moves.

The economists' consensus assumes that the decision on the increase will be taken by voice distribution 7:2. The information that, apart from Cunliffe and Ramsden, Silvana Tenreyro also objected to monetary tightening could be received as dovish. It will also be interesting to suggest whether today's decision will mark the beginning of a longer cycle of increases or whether the Bank of England will bring rates to pre-Brexit levels, and look at inflation and the process of leaving the EU by the UK over the coming quarters.

Additionally, the BoE will also publish the minutes from November's meeting and the Inflation report. A large amount of information and hard to interpret nuances can cause rapid movements on the pound. In addition, half an hour later, Mark Carney's press conference will start. The BoE's President has recently become more hawkish, which may suggest that, however, the final message from the British monetary authorities will support the sterling.

The limited movements on the zloty

Since Tuesday afternoon, the zloty has had a slight increase in value. The Polish currency was primarily supported by good global sentiment caused by further market shares growth in the US combined with stabilisation of the US government bond market. Among domestic factors, Tuesday's inflation data showing a price increase of 0.5% MOM could also support the zloty. This may be one of the arguments for part of the Polish Monetary Policy Council to present a slightly more hawkish message at next week's meeting and therefore, strengthen the zloty.

In the morning, data from the Polish industry was published. The PMI index was slightly below the forecasts (53.4 pts vs. 54.0 pts), but in the description provided by IHS Markit, there was very little negative information (read for October equals the current average for 2017). However, it may be interesting that the costs of ready-made products in the industry increased in October at the fastest pace in more than six years. Connected with recent consumer inflation reports and rapid wage growth, this information may also contribute to a more restrictive MPC approach than it seemed a few weeks ago.

 


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