Afternoon analysis 06.12.2017

Deterioration of the global sentiment in the context of a still dovish MPC has weakened the zloty. The EUR/USD pair is around 1.18, linked to the ambiguous data from the US, employment growth in the industry sector is the highest this year, but labour costs decreased in the Q3.

Weaker zloty

During today's session a deterioration in market sentiment was observed, which could have been caused due to a fear of increased tensions in the Middle East, an increase in the US debt limit, or the issue of tax system reform in the US (the recently adopted version of the Senate assumes a reduction in corporate taxes from 2019). As a result, the main US stock indexes closed the day in the red. A similar situation was observed during the session in Asia, where most of the indexes fell significantly. This trend was also continued in Europe, where indexes were losing by about 1%.

The increased aversion risk level caused a deterioration in the valuation of the emerging countries currencies, including the zloty. Today, the EUR/PLN quotations reached 4.217, the highest level since last Friday. The dollar's price increased slightly above 3.57 PLN, one unit of the US currency cost the most for two weeks. On the other hand, the zloty's relation to the regional forint remained at the same level as yesterday.

In the following hours, the most important factor determining the zloty's quotations will probably be further event developments on the stock and Treasury bond markets in the US. If we observe a deepening of the share depreciation, combined with the still relatively high yields, the zloty may depreciate, taking into account the relatively dovish attitude of the Monetary Policy Council (during yesterday's conference).

EUR/USD tested 1.18 level

Starting from the morning, the main currency pair exchange rate, the EUR/USD, was gradually moving from 1.185 to 1.180 around 3.00 p.m., exceeding a minimum level of 1.18 for the first time in two weeks. ADP publication indicating an increase in employment in the private sector by 190k in November turned out to be only slightly higher (by 5k) than market expectations. However, an increase in employment in the manufacturing sector by 40k turned out to be the highest so far this year.

The ADP publication may give guidance on the official Department of Labor data that will be released on Friday. Positive data may somewhat support the dollar today, although its impact may be limited, its correlation in the past was not ideal. In addition, the Bureau of Labor Statistics (BLS) has published revisions of unit labour costs in the Q3 in the US today, from an increase of 0.5% QOQ they were revised downward by 0.2%. This may, in turn, indicate a slightly lower inflationary pressure and, as a result, reduce the probability of rate hikes in 2018.

Even before the beginning of the European stock exchange session, at 8.00 Destatis published new orders in the German industrial sector in October. Although they were expected to decrease by 0.3% in comparison with the previous month, they increased by 0.5% for the third month in a row. September's data was also revised upward from 1% to 1.2%. Orders from eurozone countries fell by 1.2% compared to September, but orders from countries outside the eurozone increased by 1.6%. Today, this publication had a limited impact on the euro's quotation due to worsening sentiment. Tomorrow, data on industrial production in Germany will be published. If they were also a positive surprise, they could support the euro.

Tomorrow's preview

At 8.00 a.m., the Federal Statistics Office (Destatis) will present October's data on industrial production. In September, production decreased by 1.6% in relation to the previous month, much more than market expectations (0.8%) indicated. At the same time, it was the biggest decrease this year, although a month ago, the most significant increase was recorded since August last year (by 2.6%).

The market consensus indicates an increase in production by 1% in October. Although this data is subject to relatively large volatility, a better reading than consensus could contribute to improved market sentiment, also taking into account today's better than expected new orders data in this sector (the third consecutive month of their growth, although a decrease in October was expected).

Three hours later, Eurostat will publish data on the GDP growth pace of the eurozone in Q3. This will be the third, final reading, therefore the probability that this data will deviate from previous publications is limited. Preliminary data indicated that the eurozone economy grew at the pace of 2.5% per year and 0.6%. It seems that the impact of this publication will not be significant in the case of a similar reading as before. Only a stronger deviation from the aforementioned data could cause bigger movements on the euro.