Afternoon analysis 22.08.2017

According to the ZEW Institute, the better than expected evaluation of current Germany's and the eurozone situation has been overshadowed by much worse than the consensus readings of economic expectations. Changes in the euro valuation have been limited as investors have been waiting for Jackson Hole. Trading of the Polish currency has been stable - better sentiment has been helping the market's situation.

ZEW's Institute mixed expectations

Today, the ZEW Institute published the sentiment index, for the eurozone and Germany. Although the decline was expected, its scale has been clearly worse than the consensus. For Germany, it fell to 10pts (expected 5pts) from 17.5pts (a month ago) - it has been at its lowest level since October 2016. At the same time, it has significantly reduced the index for the entire eurozone to its lowest level in four months.

Such a significant decline in future expectations about the situation of the largest economy in Europe could be due to the increased uncertainty of German economy future growth. This has been, in turn, the result of recent scandals in the car industry, slightly worse than expected foreign trade readings and the upcoming elections.

In considerable contrast with future expectations was the current assessment of the German economy. It has risen above expectations to 86.7 pts, approaching the 6-year peak from two months ago. Also, the current assessment for the eurozone has positively surprised - since November last year it has been continuously growing and reached its highest level since January 2008.

This data, however, had very limited impact on the euro. It may show that market participants have been mainly focused on Mario Draghi’s speech on Friday (the president of the European Central Bank) in Jackson Hole, USA. Until then, the macroeconomic publications may, therefore, have a small impact on trading. Also, the fluctuation range should be limited to that of the recent days.

Small changes on the zloty

Today, the zloty's exchange rates in relation to main currencies have been characterized by low volatility. In relation to the levels from around midday, the value of the zloty has remained practically unchanged. The Polish currency has remained relatively weak and in relation to the Hungarian forint, it has been close to 7-month lows (the PLN/HUF pair has oscillated around approx. 71).

Today, a slightly better sentiment and smaller risk aversion (compared to yesterday's or Friday's) has been observed. A gain of approximately 1% was achieved by the main European stock indexes. Also, future contracts for the main US indexes have been rising, which makes the likelihood of them finishing the day on the positive side more likely. The Polish currency has been particularly sensitive to any decreases in sentiment - the risk of such a scenario seems to be unlikely to happen today, therefore, the probability of zloty depreciation in the next few hours also seems to be limited.

Tomorrow's preview

Tomorrow, the preliminary readings of the PMI's business activity indexes in the manufacturing and services sector will be published for the eurozone, France, Germany (until 10.00 a.m.) and for the USA (at 3.45 p.m.). Although the median market expectations pointed to slight changes in these indexes, the manufacturing PMI is expected to be lower than a month earlier for all of the aforementioned economies.

On the other hand, the market consensus indicated that service indices will increase in Germany, remain unchanged in the eurozone and fall slightly in France. In the absence of other relevant publications, the PMI readings may have a noticeable impact on the euro.

Ultimately, however, the impact will probably be relatively limited - the most important event of this week seems to be Mario Draghi’s speech on Friday in Jackson Hole (USA). Until then, the chances of significant fluctuations on the euro have been limited - the value of the single currency area against main currencies will likely to move within the observed range in recent days.

At 3.45 p.m., the US PMI index data will be published. For the US economy, the ISM index has been more significant and has a greater impact on the dollar. However, taking into account the limited calendar of events, the level of dollar fluctuations may increase in the case of a significant deviation from consensus readings. Currently, it points to the maintenance of the industrial sector's unchanged index and a slight increase in services.