Afternoon analysis 02.02.2016

Unemployment data from the eurozone is better than estimates. Important publications are scheduled for tomorrow from the States. The zloty remains stable in the afternoon despite some deterioration in the global sentiment.

Lower unemployment but still far from the lows

The Eurostat published data on unemployment for the UE today. It remained at 9%, the lowest level since June 2009. Theoretically it is a good signal, suggesting that the labour market has improved significantly. However, it is worth noting that it is exactly half the truth.

At the turn of 2007/2008 the unemployment in the UE was around 7% while its post crisis peak was registered in March 2013 at 11%. Nine percent is exactly half way between what was observed before the economic slump and the maximum level. It would probably take a long time until one can say that the indicators describing conditions of the labour market in the UE could be named good.

The situation looks even worse in the eurozone. Despite its decline to 10.4% it continues to shape relatively close to the historical peaks around 12% and far from the lows observed during most of the previous decade – between 7-9%. Mainly two countries are responsible for the fairly weak readings – Italy and Spain, where unemployment is at 11.4% and 20.8% respectively.

Important readings from across the pond

Staying in a climate of labour market it is worth noting tomorrow's publications form the US. At 14.15 CET the ADP report is expected to be published with private payrolls reading. Fulfilling the expectations around 200k should be neutral for the FX market. On the other hand the lower the reading the risk of dollar weakness should be higher.

The non-manufacturing ISM index is also expected to be in focus and especially the employment index. For around 144 million payrolls in the US, more than 120 million is crated by services and around 102 by the private sector. The ISM is one of the most closely watched leading indicators for the US economy.

Giving the growing concerns regarding the economic conditions around the world the publication from the US might be used to either dismiss the threats or increase the fears regarding the future of employment across the pond.

The ISM has been recently at high levels. It hasn't slowed below 56 mark since mid 2015. However, if it turns out that it drops significantly, for example, below 52 points, the fears would grow especially that the jobs market is regarded as a bright spot so far. The realization of the negative scenario could also be used to weaken the dollar.

The zloty remains stable

Despite a noticeable deterioration of the global sentiment the domestic currency remained relatively stable. Tomorrow the local market is expected to be focused on the MPC meeting. None of the 36 surveyed by Bloomberg economists foresee that rates will be modified on Wednesday.

The investors' attention would be directed to the governor press conference and the MPC statement. The communication should be fairly neutral regarding the most recent volatility on the zloty and fears on the global economy. It would probably be a stabilizing factor for the PLN.