Afternoon analysis 02.01.2017

02.01.2017 16:23|Bartosz Grejner

The Polish currency started the year somewhat weaker, however, it keeps potential to some increases in value. The dollar, on the other hand, gains visibly.

Good perspective for Poland but the labor market slows down in Q3

The Polish currency weakened today, although the changes (bar the spikes in the earlier part of the day) were eventually relatively small and in the fluctuation range observed during earlier days. Additionally, according to PAP, Eryk Lon (one of Monetary Policy members), said that after the slowdown in the Polish economy in the previous quarters, there will be an improvement in this regard in the next quarters.

The contributing factors would be better consumer sentiment and positive effects of the 500+ program, among others. He also underlined that the decrease of the zloty’s value causes the export to be highly profitable according to the National Bank of Poland (NBP) which, in turn, relates to better financial results of companies and higher investments and employment.

The fact that the Polish labor market needs improvement is stressed by the results of the today’s NBP third quarter labor market report. First and foremost, the growth of the number of people working in the economy decreased to 0.2% YoY (from 1.2% in Q2). However, NBP said that this slowdown is partially caused by a significant drop in people working in agriculture while the unemployment rate is at historical lows.

This rate decreased further, but the unemployment rate remained still over 1 million. This implies that the fall of the unemployment rate was caused mainly by lower job supply rather than an increase in employment. The NBP said that “the fast-growing number of immigrants working in Poland means that, in the context of low unemployment, the companies deal with employee shortages by more and more frequently employing immigrant workers”.

The dollar was strong once again

After a rapid value loss of the dollar against the euro during the last day of trading in 2016 (the EUR/USD pair rose to 1.0650), the American currency has been steadily recovering during the day. The aforementioned pair has been closing to the 15-trading day moving average (about 1.0450). The dollar’s appreciation was also noticeable in relation to the yen and pound, to which it gained about 0.3%. The GBP/USD pair fell once again below the 1.23 level.

Tomorrow’s Great Britain’s manufacturing PMI could have a considerable impact on the pound. This index has been on the decrease in the last two months from a relatively high level observed in September (55.4) which was reached two months after the shock results of the Brexit referendum. Relative to the zloty, the pound still loses 9% to the level before the referendum. In relation to the dollar, it’s even more – 18%.

Tomorrow’s preview

Tomorrow at 9.55am Destatis will publish the December’s German labour market data. The unemployment rate has been steadily coming down since March 2005 when it reached 12.1%. This year in November it was only half of it, namely 6%. This positive trend can be also noticed in the change in unemployment in each month this year – an increase was observed only during one month in 2016 (and it was only by 1k).

The median of expectations points to similar readings as in November, i.e. unemployment rate at 6% and a decrease of a number of unemployed people by 5k. Taking into account the recent trend, Germany’s economy good condition, both consumers’ and companies upbeat sentiment, one shouldn’t expect the aforementioned indices to disappoint.

Just after the opening bell for the NYSE, IHS Markit will publish at 3.45pm the second December’s Manufacturing PMI index for the US economy. Changes in comparison to the first reading (54.2) aren’t expected. More important event will occur 15 minutes later when ISM will share its Manufacturing index, which after a drop below 50 points (meaning a lower activity in the sector) in August has been consistently on the rise every month.

In November it was 53.2 and the market consensus points toward a further increase in December to 53.5. The publication of this index will be the first major macroeconomic data which could significantly impact the value of the dollar. Hence, one should presume a higher dollar volatility (and indirectly of other currencies) around the time of the publication. Taking into account the present consumers’ and companies’ sentiment and expectations in the USA and exceeding forecasts manufacturing PMI indices for European countries as well, the ISM will most probably not disappoint, which in turn could support a stronger value of the dollar.

 


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