Afternoon analysis 10.03.2017

Both the employment in the American non-agricultural sector and the participation factor increased in February. However, the market is slightly disappointed with these growths. The zloty is slightly stronger.

American data wears-off the dollar

Investors estimated that Wednesday’s ADP data regarding employment in the non-agricultural sector (positive 298k) will be confirmed by the data from the Bureau of Labor Statistics (BLS). And even though the result at the level of 235k appeared to be much better than the market consensus, it was still significantly worse than the ADP reading. The unemployment rate remained at the level of 4.7% and the participation factor increased from 62.9% to 63.0%.

However, hourly wage data was disappointing. According to the BLS, this index increased up to 26.09 dollars (0.2% MoM growth against the expected 0.3%). This data is even weaker, when we look at this index’s results from 2016 (0.3% MoM in both March and April).

Initially, the EUR/USD increased from 1.06 to 1.064. Despite the positive situation in the American labor market, a worse increase in the hourly wage may decrease the likelihood of four rate hikes in 2017 and wear-off the dollar. However, next week’s decision regarding interest rates from the FOMC (on Wednesday) is most likely to be hawkish. This should strengthen the dollar and cause the EUR/USD to return to the 1.06 level.

Zloty benefits from the American data

Yesterday’s testimony from Mario Draghi wore-off the zloty against the euro. Today, the EUR/PLN has remained within the range of 4.32-4.33. However, the pound’s global weakness caused the GBP/PLN to near its four-month minimum (4.954).

The reaction to the BLS data was mainly limited to the USD/PLN, which went down to 4.065. Worse data regarding the hourly wage appeared to be positive information for the zloty. This is because the aversion towards the zloty could have increased in the case of the dollar’s growth. However, due to the BLS report, the zloty gained against the franc, the pound and the forint.

Next week’s events

There is no significant macroeconomic data scheduled for Monday. However, the economist sentiment index for both the eurozone and Germany at 11.00 on Tuesday. The past few months have brought an upward trend regarding this index.

On Tuesday at 14.00, the Polish Central Statistical Office (GUS) will present the CPI for February. This index was at the level of 1.8% YOY in January. Currently, the market consensus is at the level of 2.1%. A higher result shouldn’t cause fluctuations on the zloty, due to increasing inflation in the other EU countries. On Wednesday, the GUS will publish the data regarding baseline inflation. Due to the dovish tone from the previous MPC meeting, this index’s significant increase would escalate fluctuations on the zloty.

Also on Wednesday, the market will receive the announcement from the FOMC. This will be published at 19.00 and Janet Yellen’s press conference will start thirty minutes later. Rate hikes for this meeting have basically already been decided. Therefore, the suggestions about four rate hikes for this year should increase the profitability of the American bonds and strengthen the dollar.

On Friday, the GUS will publish the data regarding the Polish industrial production and the retails sales for February. In January, the results were at the level of 9% YOY and 11.4% YOY for industrial production and the retail sales, respectively (both better than expected). Currently, the market consensus is at the level of 2.9% YOY (industrial production) and 8.6% (retail sales). If the upward trend of these indexes continues, this would be a forecast for a better than expected GDP reading for the first quarter, as well as strengthening for the zloty.