Another day with weak data (Daily analysis 04.05.2018)

04.05.2018 12:12|Marcin Lipka

Weak macroeconomic readings from the eurozone. Serious sale of Turkish lira and Argentine peso. The zloty remains under pressure before data from the US labour market. The EUR/PLN in the range of 4.27-4.28 around midday.

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

  • 2:30 p.m.: April's data from the US labour market. New payrolls in non-farm sector (estimates: 190k). Unemployment level (4.0%). Change in hourly wage (estimates: 2.7% YOY and 0.2% MOM).

Euroland fails to meet expectations

There are more signals that the economic situation in the eurozone could be worse than previously expected. In March, retail sales in the single currency area increased by only 0.1% month-on-month and 0.8% year-on-year. In a yearly basis, economists expected a 1.9% growth.

Prepared by IHS Markit final PMI data from the service sector in Germany failed to meet expectations. According to the preliminary reading, April's PMI was 54.1 points, but in reality, it reached only 53.0 points, i.e. the least since 19 months. In yesterday's statements Peter Praet, the ECB's chief economist, was unsure whether the recent slowdown was due to one-off factors (weather, different holiday patterns, strikes) or to earlier than expected flattening of economic growth. After today's readings, the latter scenario seems more probable.

In the context of the euro's price, it is also worth noting that the base inflation rate for April was only 0.7% y/y. This is only 0.1 percentage point more than the historically low readings in March and April 2015. In the context of inflation, seasonal factors may indeed have played a significant role (different Easter holiday timing), but even if we take into account the average data since the beginning of the year, the values are still surprisingly low - about 0.9% YOY. Together with the worse than expected economic situation, this is a good reason to delay the withdrawal from the quantitative easing by the ECB. This should also be a negative signal for the euro.

Crisis on Turkish lira and Argentine peso

For a while, the zloty was the weakest currency in the world when it compared to last week's closure. However, now the Turkish lira and the Argentine peso have taken its place. Unlike the zloty, the pressure on the lira and the peso is mainly caused by the local factors. In the context of the Polish currency, global signals and low liquidity on the Polish market played a major role.

Since last Friday alone, Lira depreciated by 4% in relation to the euro. The market, which initially reacted positively to information about early elections, now fears that they may lead to even greater fiscal stimulus. Over the last 12 months, the lira has lost almost a quarter of its value against the euro and is now the cheapest in its history.

In turn, Argentina is undergoing a series of reforms following many years of populist government. However, the new administration cannot cope with inflation and the outflow of capital. Since April 27th, the central bank has already doubled its interest rates and intervened in the peso market. However, the local currency has lost around 7% to the euro over the past week.

However, apart from negative examples from emerging markets, it is also worth noting the Czech crown. It was one of the few currencies that weakened sharply during the Labour Day. However, now there is practically no trace of this weakening and, in relation to the euro, it is only 0.13% weaker than last week's closure. On the other hand, the zloty still loses about 1.5%.

Zloty's situation before labour market's data

The Polish currency remains weak around the midday. The zloty's condition, which is significantly worse than that of the Czech crown or the Hungarian forint, may still be an effect of low liquidity on the Polish currency. If today's wage readings in the US do not exceed +2.7% year-on-year, then there is a chance that the zloty will start paring the last losses at the beginning of next week.

However, if the data on wages in the USA exceeded the level of 2.8% year-on-year, then it can be expected that the pressure on the emerging countries currencies will increase, and consequently, the zloty may also be sold out. In such a scenario, the highest increases may be observed in the USD/PLN pair, which may even test the 3.60 level in the case of strong readings from the United States.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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