Afternoon analysis 30.11.2016

Relatively good data coming from the U.S. regarding private sector employment, private income and PCE inflation was overshadowed by sharp oil price increase. The Polish currency loses its value together with dollar’s appreciation.

Relatively good data coming from the U.S. regarding private sector employment, private income and PCE inflation was overshadowed by a sharp increase of oil prices. The Polish currency loses its value together with the dollar’s appreciation.

Oil prices dictate today’s trading

Employment in the private sector (according to ADP) increased by 216k in November, which was significantly higher than what the market expected (170k). However, there was a downward revision of the October employment increase from 147k to 119k. Taking into account company size, the biggest employment increase (90k) was observed in the case of the largest companies (above 500 employees). A growth of only one thousand less was reported among mid-sized companies, which employ from 50 to 499 people. In contrast, employment growth amounted to only 9k among the smallest companies (employing up to 19 employees).

On one hand, when looking at the data from the aforementioned report by sector, a decrease of employment was present only in the goods-producing sector: 10k down in manufacturing and 4k in natural resources/mining. On the other hand, the service-providing sector contrasted with the former: growth employments were at their highest in trade, transportation and utilities (69k). An increase of only a thousand less was noted in the professional and business services – of which administrative and support services constituted 2/3 of this industry.

According to today’s report from the Bureau of Economic Analysis (BEA), Americans’ private income rose by 0.6% in October, above both the market expectations of 0.4% and the previous value of 0.4%. This is the biggest increase since March 2013. However, personal spending was slightly below the market consensus (0.5%), and September’s value (0.7%). PCE inflation, which is used in the Fed’s projections, rose 1.7% YoY and 0.1% MoM, which are in line with market expectations.

While today’s data regarding the U.S. economy could be considered positive, rapid growth in oil prices caused the biggest impact on the dollar. There was an official and scheduled OPEC meeting in Vienna today, where the organization was meant to reach a final deal on a production cut. Oil prices rose above 8% in anticipation of an agreement. Higher prices of “black gold” in turn brought about an increase of inflation expectations. The U.S. Government’s bond yields grew quickly, invoking an appreciation of the dollar. The EUR/USD fell below 1.06 once again and the USD/JPY increased above the 113 level.

Internal and external situation doesn’t favor the zloty

Polish currency depreciated even more in the second half of the day. Before noon, the zloty was hit with negative data from the Central Statistical Office of Poland regarding the components of the GDP growth in the third quarter of 2016, which we described in detail in this morning’s comments. The aforementioned appreciation of the dollar is associated with good U.S. data. However, with a rapid growth in oil prices, it caused the zloty to depreciate even further. Once again, the USD/PLN pair was trading close to 4.20. The relation of the euro to the zloty also rose to 4.45, even despite the fact that this pair was relatively more resilient in recent days to changes in the global sentiment.

Tomorrow’s preview

On Thursday, we will get to know the IHS Markit’s Manufacturing PMI data for November. At 9.00, the index for the Polish economy will be published. It was at the level of 50.2 in October (the lowest in over two years) and was considerably below the expectations of 52.9. This level is very close to the level (50) which separates growth from a decline in manufacturing. The median market expectation of 50.8 implies a slight increase of manufacturing activity in November.

At 9.55 AM, the gauge will be published for the German economy, and 5 minutes after this, the data from the Euro Zone economies will be published. This will be a secondary reading of the November data, which was at 54.4 for Germany and 53.7 for the Euro Zone (the most in nearly three years). Current market expectations are at a similar level to the first above reading from a week before. Hence, the impact of this data on the value of the euro should be relatively moderate.

This November’s indicator value will also be published for the British economy at 10.30 AM. From November 2013 to July 2016, its value dropped considerably - from 58.1 to 48.3. In the previous three months, however, it had been visibly rising – the September level of 55.5 was the highest observed in over two years. The market consensus implies that the Manufacturing PMI will be at 54.5 in November, which would constitute a 0.2 increase over October’s level. Taking the pound’s recent nervousness into account, tomorrow’s data could cause an increase in volatility in the currency’s exchange rate if there’s any deviation from market expectations or a previous value of this indicator.

Markit will publish the second Manufacturing PMI reading of data for the United States from November, as well (at 3.45 PM). In the report from last week, the index above was at 53.9, which is the highest it has been in a year. The market doesn’t expect a change of this data, and investors’ attention will not likely be focused on this piece of data. A quarter of an hour later, ISM will share its Manufacturing Index for the U.S. economy in November, which is historically more significant than the PMI (for the U.S. at least). It fell below the 50 boundary in August, but increased slightly (up to October’s 51.9) in the following two months. Regarding November’s index value, market expectations are currently at 52.2. After the U.S. presidential elections, the dollar’s value rose considerably. However, it has lost some steam in recent days. If tomorrow’s data proves to be above the consensus - or even close to August’s level (52.9) - the U.S. currency could further appreciate.