Afternoon analysis 07.10.2016

The data from the American labor market is slightly disappointing. Global weakness of the pound and the dollar causes these currencies to wear-off against the zloty.

Unemployment in USA is at the level of 5%

Today’s data from the American Labor Department appeared to be worse than expected. The unemployment rate for September was at the level of 5% and this is its worst result since March (only 4.9% in August). Employment in non-agricultural sector was at the level of 156 k, against the consensus of 175k. This also resulted in a decrease of the average for 2016 (currently at the level of 178k).

The index of employment in non-agricultural sector was mainly caused by larger than expected reduction in employment in production sector. This index was at the level of 16k workplaces. This was suggested by worse than expected ADP report from Wednesday, which only indicated a reduction in employment in production sector (by 6k). The data regarding the average hourly wage was also slightly disappointing (a 0.2% m/m increase against the consensus at the level of 0.3% m/m). However, the data was consistent with expectations in year on year interpretation (2.6%).

After the jobless claims data from yesterday, which was better than expected, as well as indicated its forty-year minimum, the market was expecting more positive information from the Labor Department today. Investors’ reaction on today’s data was unambiguous – the dollar lost its value and went back to the level of 1.12.

What’s more important is that the likelihood of rate hikes at the Federal Reserve meeting in November, as well as in December (calculated by CME, based on the Fed Funds contracts), went down to 15% and 50%, respectively.

Zloty is becoming stronger against dollar and pound

The GBP/PLN continued to decrease during the day. The British currency was harmed by the industrial production data, as well as by the trade balance data from today, which was worse than expected. At approximately 16.00 (4.00 PM), the pound was at the level of 4.73 PLN. On the other hand, the dollar went down to the level of 3.82 PLN due to worse than expected data from the American labor market.

The Clinton-Trump presidential debate on Sunday will be significant for the USD/PLN. Hillary Clinton’s victory in the previous debate (according to the CNN surveys) wore-off the dollar slightly. Therefore, a similar scenario may occur in the case of her another victory. This would be positive for the zloty. However, if Donald Trump appears victorious, the USD/PLN may reach the level of 3.85.

Markets on Monday

Another presidential debate between Hilary Clinton and Donald Trump is scheduled on Sunday, October 9. This will be the second debate and it will be slightly different than the first one. It will have a town-hall-meeting form and some of the questions will come directly from citizens. Bloomberg indicates that historically this form of debate has always been less provocative. The candidates are focusing less on attacking each other. This gives them a larger freedom of saying what they really think and believe in. The first debate (won by Hillary Clinton according to the American press) caused a decrease in value of the American dollar, as well as the Mexican peso’s appreciation. Therefore, we should expect a larger volatility of the American currency at next week’s beginning.

At 7.45 AM, we will know the unemployment level in Switzerland for September, which will be published by SECO. The consensus assumes that the unemployment rate will be at the level of 3.4% (the same as it was in August). Even though this index was at the level of 3.3% in three months before August, the long-term trend has been indicating an increase in the amount of unemployed in Switzerland since 2001.

At 8.00 AM, we will know the data from the German Federal Statistic Bureau regarding trade balance (including export and import). Even though the German trade balance is near its historical records, it has been wearing-off since May (at that time its peak was at the level of positive 24.1 billion euro.) The market consensus assumes that it will continue to decrease (from 19.4 billion euro to 19 billion euro). Today’s data regarding industrial production for August was better than expected, as well as the best in five years (positive 2.5% against the positive 0.8% consensus and the negative 1.5% in July). It gives hope that the trade balance for August will be slightly better than expected.