Daily analysis 08.12.2017

08.12.2017 13:06|Marcin Lipka

The pound is supported by reports related to the Brussels-London divorce agreement. The US dollar appreciated before an important publication from the US labour market. The zloty is supported by a good global sentiment. Political events in the country do not affect current PLN prices.

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

  • 2:30 pm: November's data from the US Department of Labor. Payrolls change in non-farm sector (estimate: 195k). Change in wages (estimates: +2.7% YOY and 0.3% MOM) Unemployment rate (estimate: 4.1%),
  • 4:00 p.m.: December's consumer confidence index by University of Michigan.

Stronger pound

Yesterday evening, news began to air regarding the Brexit divorce agreement and the fact that it is drawing near. First, there were reports related to the arrangements on the EU Court of Justice. The withdrawal of the UK will be spread over time and there is no precise information on when it will take place exactly. The head EU negotiator mentioned a period of 8 years in this morning’s comments.

Definitely, the issue of the border between the EU and Great Britain has aroused more emotion. The United Kingdom stated that there will not be a “hard” border between Northern Ireland and its southern neighbour. However, there is no precise information on how the border between Northern Ireland and the continental part of the United Kingdom will look like. In general, the chance of a so-called "soft Brexit" is increasing, mainly due to the desire to avoid any barriers in the UK. This will also reduce the risk of special regulations, such as Scotland.

Bloomberg, in turn, points out that the UK will pay a Brexit bill of between 40 billion EUR and 45 billion EUR. This is quite close to the requirements of Brussels. Taking into account the current parameters of a divorce, it is clear that London has agreed to most of the EU's demands. Of course, trade talks will begin now, but it is clear that the risk of a “hard Brexit” is decreasing and the UK's relations with the EU will be closer what we see currently rather than a non-Community country. This should mean that the pound can receive clear medium-term support.

Data from the US

Apart from the pound strengthening in comparison to yesterday's midday level (approx. 1% on the global market), it is also worth noting the stronger dollar. The Bloomberg agency reported that President Trump's administration is planning to publish an infrastructure reform plan for January. Investors have somewhat forgotten this point, but it should strengthen rather than weaken the dollar with tax changes.

In the context of the US currency, reports on the adoption of a law by Congress which prolonged financing of federal institutions and prevented so-called "government closure." This decision was widely expected, but together with the promises of infrastructure investments, it could also prolong a good sentiment towards the dollar. Moreover, it is also worth noting the pound issue. The better condition (the demand for sterling) is more damaging to the euro than to the dollar.

In the afternoon, investors' attention will be attracted to data from the US labour market. The last payroll publications were disturbed by hurricane issues (first downward then upward). Also, data related to wages was likely imprecise due to problems with the proper sampling of areas that were affected by hurricanes. Now, the readings should be free from these events and can be analysed more than they have in recent months.

Readings on wages should be the most important issue in the US Department of Labor's November publication. The consensus expects its growth by 2.7% YOY and 0.3% MOM. It seems that even a small surplus over these values (by 0.1 percentage points) should, of course, be positively received by the dollar if the number of new payrolls does not fail (about 200k) and the unemployment rate remains at the level of 4.1%. In addition, given that a relatively good sentiment for the dollar has been seen around midday, it is possible that Friday's session will end below the 1.1700 level.

Calm situation on the zloty

Yesterday's changes on the national political scene did not affect the zloty's valuation. Although the EUR/PLN pair has returned to the range of 4.20-4.21, it is rather a result of a good global sentiment, which, weakens the franc in relation to the euro. Also, the very small zloty appreciation to the forint is rather a result of changes outside Poland. The better sentiment of global investors causes a more positive reaction to the Polish currency than the Hungarian currency.

Similarly, as in the case of the dollar’s valuation, today's data from the US may also be important for the zloty. The greater the pressure on strengthening the US currency and the higher the treasury bond quotations in the US, the chance of weakening the zloty is higher (in relation to the dollar is higher) - details in the previous paragraphs. On the other hand, a good sentiment towards most emerging markets should reduce the impact of data from the US on the EUR/PLN or the CHF/PLN. Therefore, the valuation of the franc or the euro against the zloty should not change significantly, even if the data in the United States surprises positively.

 


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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