Daily analysis 04.05.2017

04.05.2017 12:15|Marcin Lipka

The US data didn’t disappoint. The Federal Reserve suggested further interest rate increases. The publication regarding the British services sector exceeded market expectations. The zloty has been somewhat weaker, but the EUR/PLN pair is still close to its year-and-a-half lows.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information unless marked otherwise.

  • 14.30 CET: Weekly initial jobless claims in the US (estimates: 248k)

The Fed expressed the inclination for further rate hikes

An inflow of very interesting data was seen during Wednesday’s session. Firstly, investors received the ADP report regarding the US labor market. April’s data showed a 177k increase in employment in the private sector while 175k was expected. A publication in line with economists’ expectations should decrease fears before Friday’s official Department of Labor data. This was also the first positive signal for the dollar which had been under pressure after weaker than expected US data (GDP, durable goods orders and earnings).

Secondly, the ISM index for the services sector beat expectations with a reading of 57.5 points (55.8 was expected). A fairly weak ISM manufacturing index from the beginning of the week sparked fears that the US economy could be facing growth problems after and an average first quarter. This fear should be alleviated now.

Before the closing bell in the US, the Federal Reserve issued a statement after the May FOMC meeting. The market didn’t expect significant changes, however, the dollar was slightly stronger after the Fed stated that the slowdown during the first quarter was probably temporary and reaffirmed its view about the gradual adjustment of the monetary policy. This fit well with Wednesday’s better than expected US macroeconomic data. Generally, the dollar and US treasury yield gained support, however, investors most probably are waiting for Friday’s official labor market data and FOMC member comments (three have scheduled speeches).

Pound supported by the data

Just before midday, IHS Markit and CIPS published PMI data for the services sector. Similar to the case of the manufacturing and construction PMI indexes, the situation exceeded expectations in April. The index rose from 54.9 to 56.2 points, while the consensus was 2 points lower.

In his comment on the report, IHS Markit chief economist Chris Williamson pointed out that the last three PMI readings suggested that the GDP growth would be 0.6% QoQ at the beginning of the second quarter. That’s significantly higher than the current Bloomberg consensus of 0.4% and considerably higher than one could expect in the context of tense Brexit negotiations with Brussels, upcoming elections and the expected decrease of consumers’ purchasing power related to higher prices and no growth in real earnings. Should the data positively surprise even further, the pound could appreciate even in the context of nervous negotiations with the EU.

Zloty slightly weaker after recent records

The decline on the EUR/PLN pair to the 4.19 level during the long holiday weekend was probably caused by low liquidity in the Polish market and sustained foreign interest regarding Polish assets. Even if today’s session had seen the EUR/PLN coming back to 4.21-4.22, the risk of the zloty’s positive situation worsening is fairly limited.

A sudden deterioration of the situation in the eurozone or considerably higher probability for rate hikes in the US, combined with a change in sentiment towards emerging markets, would be necessary for the negative scenario on the zloty to come true. The chances for such a scenario in the near future are very limited which reduces the probability of the zloty’s trend change.

 


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See also:

2 May 2017 15:22

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2 May 2017 12:26

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Afternoon analysis 28.04.2017

28 Apr 2017 12:25

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27 Apr 2017 14:50

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27 Apr 2017 12:18

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