Again eurozone's data failed (Daily analysis 23.11.2018)

Another decrease in PMI indexes for the eurozone. The economic activity of the common currency area has been growing at the slowest pace in less than four years. The zloty is stable and insensitive to external signals. The hawkish "minutes" may be outdated due to the state's supplementary payment for energy prices.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Disturbed peace

Unfortunately, there was a further set of weak data from the eurozone. According to preliminary IHS Markit data, the PMI index for November, combining industry and services, fell to its lowest level in 47 months. It was 0.6 pts below the projections and amounted to 52.4 pts.

It might be stated that the main point of the report is in its first paragraph. "Economic activity in the eurozone is at its lowest level in less than four years. Lower growth in new orders and falling exports are combined with deteriorating optimism about the future as well as rising costs and prices.

The industry was especially weak, the production fell to 65-month lows and is only marginally above the 50 point limit, which separates development from regression (50.4 points). The relatively high service index also incurs declines and has already reached 53.1 points. The worsening condition of the labour market may also be worrying. Employment has been growing the slowest in 22 months, partly due to reduced by industry development plans, lower orders and pessimistic outlooks.

Data from Germany failed again; its main problem is the condition of the automotive sector and the fall in global demand for goods. On the other hand, the stoppage of the downward trend in PMI apart from Germany and France can be perceived as slightly positive. However, until the final results are published, it will not be evident in which country the situation has improved somewhat.

Chris Williamson, head of IHS Markit economists, in the commentary to the data, pointed out that PMI readings coincide with GDP growth in the Q4 with just 0.3 percentage points. According to these forecasts, we can forget about the stronger rebound, which was predicted by some economists after a very weak Q3 when the eurozone economy grew by 0.2%.

If the IHS Markit estimates for the Q4 are correct and there are no revisions to the data, this year's GDP in the eurozone will grow by only about 1.3%. This is a horrible result, especially as the ECB estimated in September that GDP growth would reach 2.0% in 2018 (between 1.8% and 2.2%).

Lower than expected economic growth may bring a revision of monetary policy expectations by the eurozone's central bank. In yesterday's minutes published by the ECB, it was estimated that the risks to the economy were balanced, but there was also some discussion on the worsening of the economic perspective for the single currency area if the incoming data was weak. Therefore, it is more likely that the ECB's statement in December will be pessimistic and will suggest a slower exit from a really mild monetary policy. As a result, it is not surprising that the EUR/USD fell after the data publication to around 1.1350. If macroeconomic data from the eurozone does not improve, it will be very difficult for the main currency pair to pare the losses.

Stable zloty. Hawkish minutes

The Polish currency remains stable. The zloty is supported by good data from the country, as well as by the reduction of pressure on emerging market currencies, due to a very rapid and deep fall in crude oil prices. What may be interesting is that minutes from the last meeting of the Monetary Policy Council were relatively hawkish. During the meeting, there was a proposal to raise interest rates by 0.25 percentage points. It was rejected, but it can be seen that two or even three MPC members may be willing to tighten monetary policy at the beginning of 2019.

The impact of yesterday's minutes was not particularly visible on the zloty. The expected increase in electricity prices, which has strongly raised the inflation prospects, may not happen in the near future, as the government wants to compensate the higher energy prices for households and the SMEs sector. In general, minutes have shown that the prospect of keeping interest rates unchanged over the next quarters may at some point be questioned. On the other hand, in the context of the coming hours, the Polish currency should be stable, and the euro will probably remain close to the 4.30 PLN limit.