Afternoon analysis 06.10.2016

The minutes from the last meeting of the European Central Bank confirms the obligation of assets purchase at the level of 80 billion euro. The amount of the American jobless claims was better than expected. Further depreciation of the British currency causes new minimum against the dollar, as well as against the zloty.

ECB minutes

The press (Bloomberg and Reuters, for example) were bringing speculations regarding a possible decrease in quantitative easing over the past few days. Today, we received the minutes from the last meeting of the European Central Bank. The document appeared effective in cutting these speculations.

Minutes show that there is a consensus within the ECB – the assets purchase will remain at the level of 80 billion euro per month until March (or beyond if there is a necessity). Benoit Coeure indicated an increasing shortage in some types of government bonds. However, the general message is that the ECB would adjust the QE parameters, if such a shortage occurs.

This is consistent with Mario Draghi’s announcement, as well as with the market expectations. Therefore, the euro didn’t react to the minutes. The American data will be definitely more significant for the EUR/USD. The pair remains below the 1.12 level.

Decreasing jobless claims

The jobless claims index was at the level of 249k last week and it appeared to be better than the market consensus (257k), as well as the data from week before (254k). This reading was significant because of two things. A four-week average at the level of 253.5k was the lowest since December 8, 1973. Moreover, today’s reading was again below 300k for eighty-third consecutive week (the longest continuous streak since 1970).

This publication is also significant regarding tomorrow’s data from the American labor market. If an increase of new workplaces in the non-agricultural sector appears to be within a relatively acceptable range (150k – 200k) and salaries growth is consistent with the consensus or slightly better, this would increase the likelihood of rate hikes in December, as well as strengthen the dollar.

New three-year minimum on GBP/PLN

The global weakness of the pound has yet again allowed the zloty to increase to a level that hasn’t been observed in three years. The British currency declined by approximately 1% against the dollar, as well as against the zloty (1.26 and 4.85, respectively). However, the zloty’s quotations against other currencies were not as significant. The Polish currency wore-off slightly due to the American jobless claims data. Initially, the USD/PLN increased to the level of 3.85, but it returned to 3.84 after approximately thirty minutes. However, tomorrow’s data from the American labor market may bring the zloty to the range of 3.87-3.88 against the dollar.

Tomorrow’s events

Tomorrow morning, we will know significant economic data from the United Kingdom. It will concern three significant aspects of the British economy and will be even more significant for investors, regarding the historically low level of the pound. At 9.30 AM, we will know the Halifax real estate prices index, which is one of the leading indexes in the British real estate market. After two consecutive months of price declines (negative 1.1% in July and negative 0.2% in August), the consensus assumes the lack of changes in September in month on month relation. However, a decreasing trend has been observed in the year on year relation since March. At that time, the price increase was at the level of 10.1%, while it was at the level of 6.9% in August. The latter result was the lowest since October 2013. The market expects a further decrease in growth pace to 5.8% in year on year relation.

The British real estate market was also one of the highlights of Prime Minister Theresa May’s testimony during the Conservative Party conference. May indicated a shortage of apartments and houses at accessible prices. She said that, “we simply need to build more houses.” This way, she indicated a necessity of making large, as well as controversial decisions about the British infrastructure.

At 10.30 AM, we will know the British data regarding industrial production and foreign trade balance. The market consensus assumes that industrial production will grow by 0.1% m/m and 1.3% y/y. Taking into consideration that the PMI data for the British industry was better than expected, this reading may appear positive as well. This would confirm the trend that indicates a resistance of the British economy on negative results of Brexit. Even though the consensus assumes that the trade balance in August will be better than it was in July, we need to take note that the three previous readings appeared negative. However, a weak pound suggests a better trade balance for August, because it supports the British export.

At 14.30 (2.30 PM), we will know the American Labor Department data, which we have mentioned in today’s daily analysis. The market consensus assumes that September’s data will be slightly better than August’s data. The Federal Reserve stated in its recent announcement that the American labor market is in a positive condition and it continues improving.

Therefore, it’s most likely that tomorrow’s data will support the chance for rate hikes in December. Any possible deflections in the data (against the previous values or the consensus) would be a result of a statistical error, rather than real changes in the labor market. Nevertheless, the significance of tomorrow’s data is large enough to cause increased fluctuations on the dollar.