Afternoon analysis 04.05.2017

US data without an impact on the dollar – the market will await tomorrow’s Department of Labor report. The Polish currency remained strong.

Mixed data from the US

In a report published today, the Department of Labor said that initial jobless claims were 238k at the end of the week. This was 9k less than the market consensus and 19k less than in the previous week’s report. Initial jobless claims remained close to the 44-year lows recorded at the end of February. The insured unemployment number surprised positively as well. It fell by 36k to 1.964 mn in the previous week. This was the lowest level since April 15, 2000.

However, worse data came from the Bureau of Labor Statistics. Labor productivity in the first quarter in the nonfarm sector fell by 0.6% on a yearly basis, which was the first decrease since Q2 in 2016. Meanwhile, labor costs increased by 3% yearly, reflecting a 2.4 percentage point increase in earnings and the aforementioned 0.6 pp in productivity.

The data mentioned above had a limited impact on the dollar, however, as investors will likely await tomorrow’s significantly more important report on the US labor market. The sentiment presented in previous days was also dominant today. Today we observed a higher propensity towards more riskier assets.

European indexes were visibly higher, with DAX reaching all-time highs, while gold prices tumbled to their lowest level in a month and a half. The Japanese currency depreciated in this context – USD/JPY reached as high as 113, the highest level in a month and a half as well.

Zloty still in good condition

The zloty’s appreciation during the long holiday weekend was due to the good sentiment towards emerging market currencies and low liquidity in the market. The zloty could have also benefited from a higher appetite for riskier assets – prices of assets considered “safe havens” such as gold or yen have been decreasing considerably.

In the coming days, the zloty could be affected by tomorrow’s Department of Labor report. A positive report, namely payrolls and earnings above expectations, could cause the capital to flow towards the US, positively impacting the dollar and US treasury yields and have a potentially negative impact on the Polish currency. However, the impact of the aforementioned data should be limited mainly to the USD/PLN pair.

Tomorrow’s preview

Tomorrow’s most important event will most likely be the US Department of Labor’s monthly report for April. The unemployment rate has been stabilizing in the 4.5% - 4.7% range in recent months (currently at 10-year lows). The focus should then be on the change in non-farm payrolls and on average hourly earnings.

On Wednesday, ADP said that employment in the non-farm sector increased by 177k, marginally above expectations. That was, however, significantly below the growth in the previous three months - which was around 250k. The market consensus points to an 185k increase in April, nearly 100k more than in March. There was a noticeable difference (157k) that month between the ADP report and the official Department of Labor data which was likely caused by statistical noise.

The data regarding the average hourly earnings could prove even more important. In March, a 0.2% MoM increase to 26.16 USD was reported. Further growth of 0.3%, coupled with an increase in non-farm payrolls by 150k or more could be positive for the dollar.