Afternoon analysis 20.07.2016

Positive data from the United Kingdom do not change much regarding the pound, as well as the BoE decision. Words, instead of deeds will be most significant during the ECB meeting tomorrow. The zloty remains stable in the afternoon.

Today's data from the United Kingdom was a positive surprise. Unemployment rate decreased to the 4.9% level. This is its lowest value since 2005. What's interesting, it is equal with unemployment level in the USA. However, if we look at the employment in context of the amount of people in working age, the situation in the UK is definitely more favorable than in the United States.

According to the OECD data for the first quarter of 2016, 73.3% of people within the range of 15-64 years were employed. The same index in the USA was at the level of 69.2%. To compare, the Polish employment index is at the level of 64.2%, despite that the country is reaching the lowest levels of unemployment in history. Poland's result is by 0.1% lower than Portugal's, for example.

However, data about the business conditions issued by the Bank of England were slightly less positive. According to the description, the base case components of the index do not include the Brexit period. On the other hand, the surveys already contain opinions regarding consequences of the referendum for British enterprises.

The majority of respondents were shocked by Brexit. Moreover, very little of them had plans for this kind of situation. Some of the companies decided to suspend their direct investments in the United Kingdom. On the other hand, there were very little suggestions that the activity may be limited in the UK due to Brexit. In general, uncertainty was dominant.

Despite the shock among investors, the monetary authorities in London should not be surprised by the situation. Positive trends in the labor market will probably not decrease the will to monetary tightening, because they have been continued for a long time. On the other hand, uncertainty for business could have been foreseen as well.

The PMI surveys for services sector, as well as industrial sector (published on July 22) may be important. Currently, the data is estimated to depreciate below the limit of 50 points. If this scenario fulfills, these would be the lowest readings in many years. However, it is worth noting that in cases like this, the analysts forecasts are burdened with a large risk of error. This is because the actual scale of the PMI index volatility is extremely difficult to estimate. It has been proven by the ZEW publications for Germany, as well as the UK from yesterday.

No changes in ECB and steady zloty

It is unlikely that the European Central Bank (ECB) would decide to make some serious changes in the monetary policy. Deposit rates, as well as the QE scale should remain at the level from the previous meeting. However, the ECB may modify the rules of the assets purchase. Profitability of increasingly more treasury bonds of the euro zone's core states are below negative 0.4%. This prevents their purchase by the central bank. However, even if this change appears, it will have a limited impact on the euro.

Traditionally, Mario Draghi's press conference may be a certain surprise. Theoretically, Brexit should have a negative impact on the euro zone's GDP growth, as well as inflation level. If Draghi emphasizes this effect, the euro may slightly lose value. On the other hand, the “wait and observe” attitude will limit the impact on the European currency.

As for the zloty market, its quotations are quite calm. The EUR/PLN remains in a tight range of 4.37-4.38 and the franc is moving 0.02-0.03 PLN above the limit of 4.00 PLN. The situation on the Polish currency shouldn't change in the coming hours. We do not expect larger changes on the basic PLN-related pairs due to tomorrow's ECB meeting as well.