Another set of weak data. This time from France (Daily analysis 10.01.2019)

The Fed clearly withdraws from the prospect of interest rate hikes at least until the end of the first half of the year. Weak data from France. Small movements in the zloty against the euro.

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

• 6:00 p.m.: Jerome Powell's speech, the Chairman of the Fed,
• 11:30 p.m.: Richard Clarida's speech, the Vice Chairman of the Federal Reserve.

Clear statement from Fed

Records of three speeches by the Federal Reserve members appeared on the market yesterday. In addition, the Federal Reserve published minutes from the last meeting of the FOMC. What is the most important message from these multiple page records?

First of all, they show that the likelihood of rate hikes in the first half of the year is practically zero. In the minutes, the discussion on the abandonment of the forward guidance in the statement, which suggested a further monetary tightening, was clearly triggered. Now, movements in interest rates will depend on data and signals from the market.

Mixed data is unlikely to be clearer in the coming months. The market is very unstable, and the chance of restoring balance and not creating risks to limit the activity of economies in the coming months is low. Views about the need to clarify the situation are shared by both the dovish members of the Fed (Bostic, Evans), as well as, e.g. hawkish Eric Rosengren. This should keep the dollar under pressure and generate the risk of a sudden and relatively strong weakening (similar to the one observed yesterday).

On the other hand, the pressure on the dollar does not have to be continuous. If instead of stabilisation on the market, we see strong declines, the dollar will strengthen, as this may hold back the expected increases in interest rates in the eurozone, and the chance of their reduction in the USA is very limited. In turn, a strong upward trend seen in shares over the last few days and new highs on indexes may cause the market to return to the prospect of monetary tightening in the USA. Evans wrote yesterday that a pause is desirable when it comes to interest rates, but he still expects that they may finally exceed 3% in this cycle. Therefore, stabilisation or relatively moderate and ambiguous movements in shares is optimal to weaken the dollar. On the other hand, an increase exceeding the last highs or a return to declines and indexes falling below the last lows may be positive.

The US currency's condition will also partly depend on data from the eurozone. For the time being, it does not offer arguments to sell the dollar and buy a common currency. The French National Statistics Institute has published industrial production data for November. It dropped by 2.1% year-on-year, which was the worst result in 4 years.

Although the data was not as disastrous as the data recently received from Germany (the decline did not include construction, a strong negative and probably temporary impact of the automotive industry can be seen), it is worth noting that French production grew slower than in Germany in the good economic condition, and the recovery itself was much shorter. As a result, the volume of production (its index measured as the average value of 2015 at 100) fell to 102.5, which means that we are at the levels of mid-2017 and only 2.5 per cent above the value of 2015. Therefore, this is not good news for the second largest economy in the eurozone and the single currency.

Not many changes in the zloty's valuation

Contrary to the global market there is little happening around the zloty. The zloty against the euro moves close to the 4.30 boundary. Nothing interesting can be said about the prospects for interest rate movements after yesterday's message from the Monetary Policy Council. In contrast to staff information from the NBP, the information regarding interest rates is quite dull, and it is possible that the cost of the loan will remain unchanged at least until 2020.

The next hours should be calm for the zloty (especially in the case of EUR/PLN). The trend on the dollar is negative, but it is also worth noting today's speech by Jerome Powell (chairman of the Federal Reserve - 6:00 p.m.) and Richard Clarida (11:30 p.m.) which will rather not contribute much to the view of interest rates in the future. The baseline scenario remains the lack of changes in US rates at least until mid-2019 and the market will wait more carefully for macro data than for further comments from FOMC.