Afternoon analysis 22.06.2017

British factory orders were at their highest level in June since 1988, however, the pound remained little changed. The Polish currency was weaker as a result of a deterioration of the global sentiment – zloty’s value against the euro and the Swiss franc was still near two-month lows.

Positive data from Great Britain

The Confederation of British Industry published the result of the latest survey which showed that factory orders in the British economy rose to the highest level since August 1988. Export orders were also higher, mostly due to a weaker pound: 23% companies reported levels above and 10% below normal, which gave a balance of +13% - the highest count in 22 years.

However, the cost pressure remained strong and British producers expect to raise prices, just as in the previous month, however, on a somewhat lower level than at the peak of expectations in February (+23% vs. +32%). Although the data should theoretically support the pound, its reaction was muffled.

GBP/USD traded today in a relatively narrow range of 1.265 – 1.269. Political factors and expectations regarding Bank of England’s monetary policy will probably impact the British currency to a much greater extent. The increasing number of votes in favour of a rate hike during the last Monetary Policy Committee’s meetings could support the pound in the long run.

The dollar also was relatively calm today – the EUR/USD pair moved between 1.115 and 1.118 for the most of the day until 3 p.m. A report from the US Department of Labor also proved neutral for the greenback – it fell short of expectations, but only marginally. Initial jobless claims rose by 1k to 241k, however, remained close to 44-year lows from the end of February (223k), while insured unemployment remained under 2 million people for the tenth consecutive week.

EUR/PLN close to two-month highs

A deterioration in the global sentiment, brought about mainly by rapidly falling oil prices, contributed to zloty’s depreciation to a great extent. The euro and the Swiss franc cost the most in two months in relation to the Polish currency, although their price dropped by approx. 2 gr to 4.24 PLN and 3.90 PLN in later hours of trading. The price of the dollar was 3.80 PLN and the pound 4.81, although those currencies remain relatively weak in the context of the last few months.

There are no important macroeconomic publications/events planned for the coming hours which could significantly impact zloty’s value. However, the Polish currency could still be quite sensitive to changes in the market sentiment - its worsening, as a result of a further slip in oil’s prices for one, could deepen zloty’s recent depreciation. Tomorrow’s preliminary PMI data could pose a chance for the Polish currency, though, should they lift the sentiment on the European stock exchanges.

Tomorrow’s preview

Investors could focus tomorrow mainly on PMI readings for both the manufacturing and services sectors, compiled by IHS Markit. At 9 a.m. data regarding France will be published – PMI indexes for the second-largest economy have risen to six-year highs in recent months.

A similar situation could be noticed in the case of the manufacturing sector in Germany which activity according to the PMI index rose at the fastest pace in six years. The services sector hasn’t seen such uptrend, though. The sector’s PMI has been stabilising around the 55 pts level and hasn’t shown any upward potential similar to the manufacturing sector. Germany’s PMI indexes will be published at 9.30 a.m.

The above publications for Germany and France could give hints regarding the readings for the euro area (published at 10.00 a.m.). The median for market expectations points toward maintaining the current relatively high levels of indexes for both sectors which is also suggested by the general upward trend continuing for some time now.

Should the PMI data confirm the relatively good condition of the two of the biggest economies in Europe, the sentiment – dampened recently by a slump in oil prices – could improve and the euro could appreciate as a result. A better mood on the markets could also translate to a strengthening of the Polish currency, which has lost some value in recent days as a result of the rapidly falling oil prices and a worse market sentiment.

At 3.45 p.m., IHS Markit will also publish the PMI indexes for the manufacturing and services sector of the US economy. The market consensus points toward a slight improvement (in line with the recent trend) in both cases, however, their levels remained relatively low. In the case of the US, ISM data is more important/influential and also indicate higher activity, hence the impact of the PMI data could be limited.