Daily analysis 08.01.2016:
Fear regarding China is smaller, but the aversion towards risk is still visible. Day with the labour market in the USA – expectations and hypothetical reaction. The zloty remains under pressure, even though there is a chance for working off the loses when the global situation improves.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- 14.30: Situation on the American labour market: new jobs in non-agricultural sector (estimations: +200k), unemployment rate (5.0%), an increase in salaries (+2.7% y/y; +0.2% m/m).
Situation on the Chinese market stabilised. Today's session in Shanghai ended with a 2% increase of the main stock market index, and the renminbi stabilised on yesterday's levels. One of the elements responsible for an improvement in situation was resignation from suspending the trade after crossing the rate changes by 5% and 7% during one session.
The interventions on the capital and currency markets are probably also crucial for situation's stabilisation. Bloomberg informs that “China intervened in order to sustain depreciating shares for the second time this week”. On the other hand. Financial Times was quoting Zhou Hao, economist of Commerzbank. He claims that we were dealing with “an aggressive intervention” during Thursday's trade on the renminbi quoted in Hong Kong. It took the USD/CNH quotations from 6.76 to 6.70.
There was also a great discussion about the publication of a record depreciation of the Chinese currency reserves. They lost more than 100 billion USD within one month, and more than 500 billion USD within a year. These are of course quite impressive amounts (Poland's currency reserves are a total of 100 billion USD). However, it is also worth noting that during 15 years (until the mid 2014), China managed to gather 4 trillion USD of reserves. In the year 2000 they were worth only 150 billion USD.
Depreciation of the reserves is probably mainly a result of an outflow from the wallet capital, and a smaller will of the local companies to make debts in the foreign currency. On the other hand, there is no danger in sight when it comes to a more fundamental income of the foreign currencies to China. According to the latest information from the People's Bank of China (PBOC), in the first 11 months of 2015 the country reached a surplus on trade account, on the level of 539 billion USD (approximately 5% of the GDP – author's footnote). In short, this means that the Chinese economy is still competitive, and in a longer term it does not need an inflow of the foreign wallet capital.
Due to the fact that fear regarding China slightly decreased, today's afternoon on the currency market should be dominated by data from the American labour market. The Bloomberg's consensus shows that in December the American economy opened 200k jobs in non-agricultural sector.
However, there is a big chance that this reading may be slightly higher. Fist of all, the Wednesday's ADP publication showed that the creation of jobs in the USA reached the level of 257k. Even though both of these figures not always overlap, the co-relation between them is positive. On the other hand, in long term (at average 12 month) they practically overlap. Additionally, the employment subindex in the services sector ISM index was good, and it reached 55.7 points (mor than at its 24-month average, which is on its highest level since 1999).
If payrolls are within limits of 200k, the market will take note of the level of unemployment (5.0% anticipated) and an increase in hourly wages (+2.7% y/y and +0.2% m/m). The expectations regarding salaries are the highest for at least five years in year on year relation. However, they are also slightly disturbed by a good reading from January 2015. It was significantly above the average, and equalled a weak publication from December 2014. Howevet, if the wages increase by 0.3% in month on month relation and 2.8% in year on year relation, a positive impact on the American currency can be expected.
Thus, in general there is a bigger chance for a better publication and an enforcement of the American currency. On the other hand, if the expectations are not fulfilled and additionally the publication overlaps with an increase in aversion towards risk, and a decrease of expectations regarding hikes in the USA, the EUR/USD could move to the area of 1.10.
Few words about the foreign market
Today's publication from the American labour market will be quite significant. It may confirm the good condition of the American economy, and increase a chance of hikes in March. This is the base case scenario which should enforce the USD. On the other hand, if the data from the Labour Department is significantly weaker (less than 150k workplaces) and the global sentiment deteriorates, the movement towards 1.10 on the EUR/USD would be possible.
Aversion to the zloty maintains
The zloty remains weak. This week it continued to lose approximately 2% to the euro, as well as to the dollar. If the American data is better than the consensus, we could expect an improvement in the global sentiment and an increase in value of the PLN, especially to the euro. However, the publication would have to be exceptionally good (clearly above 250k, and a higher than expected increase in salaries) so that the EUR/PLN could test the area of 4.30. In the case of the American dollar we should move within the range of 4.00, irrespective of the scenario.
The Chines impact should continue to be visible on the zloty within the following days. However, if the situation in Asia stabilises, we can also expect a decrease in pressure on the national currency. Thus, the base case scenario for the EUR/PLN is the return above the limit of 4.30. Also, if aversion towards the zloty decreases, we should see the CHF/PLN within the limits of 3.95 of below this level.
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