Afternoon analysis 06.09.2016

The forthcoming testimonies of the Federal Reserve members. The ISM reading appeared to be clearly lower than expected. The zloty anticipates the MPC meeting and the decision from Moody's in the environment of quite calm quotations in the global marekt.

Series of testimonies

Despite that there were a few statements from the FOMC representatives since Janet Yellen's testimony in Jackson Hole, they didn't manage to attract much attention. However, it's worth focusing on a possible reaction to comments from some FOMC representatives, due to the fact that there are only two weeks left until the Fed's meeting in September.

John Williams' testimony is scheduled for tonight (3.15 AM). The San Francisco Fed department chairman will most likely be relatively optimistic. The questions&answers series is planned as well. It's possible that the market will receive an information that Williams sees arguments for rate hikes. Even though he does not have a right to vote this year, this might be a certain argument for a slight strengthening of the USD, especially that Williams' views are considered to be close with Yellen's views.

Tomorrow at 16.00 (4.00 PM), which is after the MPC press conference, Esther George and Jeffrey Lacker will make their testimonies in front of the Committee for Financial Services of the Chamber of Representatives. They're both representatives of the FOMC hawkish faction. George has a right to vote this year and she has used it by voting for rate hikes in July.

On the other hand, shortly after the report from the labor market on Friday, Lacker suggested that the data was positive, as well as close to the expectations. He also suggested that the longer the Fed will wait with rate hikes, the faster it will have to tighten the monetary policy in the future.

However, Eric Rosengren's testimony on Friday may be the most interesting. The Boston Federal Reserve chairman was the first one to suggest rate hikes in May. However, the Brexit danger, as well as weaker macro data have slightly changed the FOMC plans. Moreover, Rosengren made his statement recently, but he mainly spoke of increasing imbalances in the real estate market. However, if his new statements concern the monetary policy, we may expect that they would impact the market. Especially taking into consideration that the Boston Fed representative has a right to vote regarding interest rates this year.

ISM is clearly below expectations and stable zloty

In today's Daily analysis, we have taken note of many arguments for a significantly weaker ISM reading. The readings have in fact confirmed our anxieties. The American services sector went down from the level of 55.5 points to 51.4 points (expectations were near 55 points).

The production subindex went down by 7.5 points and new orders subindex by 8.9 points. The value of both components was at the level of approximately 51.5 points each. Employment component was also lower. It wend down to the level of 50.7 points (slightly above the limit that separates progress from regress). The data should definitely limit the chances for rate hikes. This is also confirmed by the behavior of two-year treasury bonds. Their profitability is going down by 4 base case points to 0.76%. The EUR/USD went above the level of 1.1200.

The only interesting information was the one regarding unemployment rate. It went down by 0.1 percentage point, to the level of 8.5%. This is consistent with the behavior of unemployment level during summer. The pace of a decrease in unemployment was similar in 2014 and 2015 as well. However, it's worth noting that this is one of the lowest unemployment readings since the beginning of the 90s.

The above data is irrelevant for the zloty, because the registered unemployment should go down at least since October. The data from the BAEL study conducted by the Polish Central Statistical Office is much more significant. Apart from unemployment rate, the employment rate is important as well. It shows the actual amount of people who have a job and not only those who seek it. Therefore, the situation on the zloty remains relatively stable and the euro currently costs approximately 4.34 PLN.