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Afternoon analysis 09.01.2015

9 Jan 2015 17:07|Artur Wiszniewski

The US labor market data in line with expectations. German reports still negative for the euro. The pound strengthened after industrial production readings. The zloty gained.

Data from Germany was negative again. After poor industrial orders figures, today's report on industrial production was also below expectations. Production fell 0.1 percent on a monthly basis – worse result than plus 0.4 percent expected. It rose 0.6 percent in the previous month (revised from 0.2 percent).

Moreover, international trade numbers were below expectations. The surplus stood at 17.7 billion euro – less than 19.4 billion expected and below 20.6 billion in the previous month. A poor result was due to drop in exports, that fell 2.1 percent (minus 0.2 percent expected). Imports rose 1.7 percent – more than 0.4 percent projected.

The beginning of 2015 is not successful for the German economy. Only PMI report on 2. January was clearly positive – the gauge returned above 50, what suggest expansion (similar tendencies were shown by ZEW and Ifo reports). However, the latter reports were clearly worse.

The French economy also disappointed. Production dropped 0.3 percent on a monthly basis against plus 0.3 percent expected. It was next drop in a row – production fell 0.7 percent (revised from 0.8 percent) in the previous month.

The recent data from the euro zone economies was negative for the euro. Today is hard to believe that there is any chance for turnaround in the euro area in the near term.

Positive surprise from the UK

Recently the pound dropped to its lowest in 17 months against the dollar. The plunge was fueled by shift of expectations for the interest rates hikes. In previous year the most optimistic scenarios expected first increases in the beginning of 2015. However, actual consensus for tightening moved toward 2016.

However, today's report on industrial production was sufficient to support the pound. The British currency managed to keep gains even after very good report from the US labor market. Industrial production rose 0.7 percent – more than 0.4 percent expected. Moreover, the trade balance was positive for the currency – deficit dropped to 8.8 billion pound from 9.8 billion – a better result that 9.5 billion expected. Nevertheless, today's data was sufficient for short term move and surely won't change long term trend.

Solid data from the US

December data on the US labor market were in line with expectations. Companies in non-farming sector added 252k in employment – slightly better than 241k expected. In addition, the data from previous month was revised up to 353k from 321k. The unemployment rate fell to 5.6 percent – a better result than 5.7 percent expected and 5.8 percent in the preceding month. It was the lowest level since June 2008.

However, not every figure was clearly positive. The wage growth stood at minus 0.2 percent – a worse result than plus 0.2 percent expected. Moreover, participation rate dropped to 62.7 percent from 62.9 percent in the previous month.

The year 2014 was the best for labor market since 1999. Employment rose 2.95 million. Given current economic situation, the Federal Reserve will pursue its plan to rise interest rates within six months.

The recent data from the United States and from the euro zone were favorable for the dollar against the euro. Although the EUR/USD inched higher after today's data, the overall assessment of the report is rather neutral. Thus, the EUR/USD should stabilize and the demand for risky asset should be stronger. However, in the longer term the EUR/USD will pursuer its march toward 11-year lows.

Today Bloomberg informed that the European Central Bank will buy at most 500 billion euro assets in its planned quantitative easing program. This information didn't affect the euro. However, if the ECB shifts to a smaller intervention than expected, the euro will be supported and the move may be stronger than a short term bounce. The ECB meeting is scheduled on 22. January.

The zloty supported

The data from the US labor market were rather neutral for the EUR/USD but positive for risky assets. This is a favorable mixture for the zloty, that was strengthened against the euro and the dollar.

The next week will be important for the Polish currency due to the Monetary Policy Council meeting. Although any change of policy parameters isn't expected, the MPC will be asked to assess the recent drop of the zloty and heightened volatility of the currency. If monetary authorities express concern, it may result in a stronger zloty.

9 Jan 2015 17:07|Artur Wiszniewski

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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