Nervousness in the markets before the US labor market reports on Friday. The stock markets were down and the euro dropped against the dollar. Broad weakness of the zloty after poor reports.
The sentiment in the markets was negative. There were no factors that would spur gains after yesterday's very successful session. Today's reports were rather mixed.
Reports on the Chinese and the Japanese industry were rather weak. Moreover, the reading concerning the European economies were vague too. The majority of indexes showed weaker readings comparing to the prior month. The largest disappointments were Italy and Spain. Moreover, France posted a result just above the level that separates an expansion from contraction.
Weaker results were also showed by Germany. However, the degree of deceleration was small when the Chinese crisis is taken into account. Switzerland posted very poor reports. The PMI index dropped to the level that signals contraction. Moreover, retail sales dropped.
Waiting for data
In the last week, Federal Reserve President Janet Yellen explained that the US central bank is going to increase interest rates this year. The US central bank believes, that even in the case of tightening it will be able to fulfill its inflation goal as the labor market expansion is strong enough.
Today's reports support the case for tightening. The number of unemployment claims increased 10k to 277k. The reading was trailing the pattern that has been seen in the last couple months as the reports hovers above the decade lows. It was a sign that the labor market expansion is strong.
Tomorrow, the Labor Department will show its monthly report on the employment situation. The market consensus is for 200k increase in employment. The unemployment rate is expected at 5.1 percent. Yesterday's ADP data suggested a positive result.
The PMI index for the Polish industry disappointed. The gauges of orders and production were weak. The export orders index dropped for the first time since October 2014. However, the employment gauge increased, what was a positive sign. The index posted the lowest reading in a year (more on the report in our previous commentary).
A broader look at the Polish reports suggests that the economy is slowing down. Earlier, a similar tendency was signaled by the reports on retail sales and industrial production. Moreover, the inflation also missed the forecast.
If current trends hold, the rumors about the need of interest rates cut will return. A similar scenario will hurt the zloty. Moreover, the Polish zloty has been under pressure of increased political risk due to general elections in October. As a result, the zloty was weak against its region counterparts.