Afternoon analysis 07.04.2017

The BLS data regarding the employment rate for March appeared to be significantly inconsistent with the ADP data. The zloty continues its strengthening.

Mixed data from USA

The data from the American labor market regarding the employment rate for March appeared to be disappointing. This is especially taking into consideration that the ADP data showed this index’s increase by 263k. Today’s report from the Bureau of Labor Statistics (BLS) was at the level of 98k, which was definitively below the consensus (190k). Moreover, this was this index’s worst resulst since May 2016. Moreover, its previous reading has been revised from 235k to 219k.

The data regarding salaries appeared to be consistent with the consensus. The average wage increased 2.7% YOY (0.2% MoM). The unemployment rate for February was at the level of 4.5%, which was better than the market consensus (4.7%) and this index’s best result in approximately ten years.

The dollar’s reaction to this data was significant. Shortly after the readings, the EUR/USD increased from 1.062 to 1.066. However, the dollar managed to work-off its losses and the pair strengthened at the level of 1.061 shortly before 15.00. Taking into consideration the inconsistency between the ADP and the BLS reports, the market may interpret this data as a statistical noise and focus on the general trend, which is relatively positive.

Zloty is in a positive condition

Today, the zloty’s value has been increasing since morning. The Polish currency strengthened against franc, euro and pound. The zloty’s appreciation against the latter was boosted by negative data from the United Kingdom. The GBP/PLN was pushed to the 4.93 level.

The zloty’s positive condition was also emphasized by the PLN/HUF, which neared its one-year maximum. The USD/PLN was relatively stable, because the positive sentiment towards the zloty was balanced by the globally stronger dollar.

The zloty’s reaction to the data from the American labor market was relatively calm. Even though the USD/PLN increased slightly, it remains near the level from yesterday’s closing.

Next week’s events

On Wednesday, we will receive the data regarding the British labor market. The data regarding the average salaries may appear the most significant. This is because this index went down to 2.2% in January, whereas inflation has been increasing more rapidly. A higher reading would strengthen the pound and increase the likelihood of the monetary tightening in the United Kingdom. Another significant reading is the jobless claims for March. This index has been better than expected in the past three months. If this trend continues, this will strengthen the pound.

Also on Wednesday, we will know the data regarding baseline inflation from Poland. Unlike main inflation, this index has been relatively stable over the past few months (0.3% YOY in February). This is one of the main reasons for the MPC dovish attitude. A rapid increase would have strengthened the zloty. However, the chances for this happening are minor. According to the initial estimates, main inflation for March was lower than in February.

On Friday, we will receive the data regarding the American CPI for March. The CPI gives investors hints regarding the general price trend. The market consensus is at the level of 2.7% YOY/ If the final result is above this level, this may increase the likelihood of rate hikes and strengthen the dollar.

We will also know the retail sales data for March. After a slight increase in February (0.1% MoM), this index is expected to increase 0.3% MoM in March. The retail sales data indicate the level of consumption, which is a significant element of the GDP. If the final result is significantly inconsistent with the consensus, this would increase the dollar’s fluctuations.