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Another warning for Italy (Daily analysis 6.11.2018)

6 Nov 2018 13:59|Marcin Lipka

The aggregated PMI index for Italian industry and services fell to its lowest level in almost 5 years. The US elections are in the limelight, but in the baseline scenario, the reaction should not be drastic. The euro quotations in relation to the zloty remain stable and remain close to the 4.31 boundary.

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.

Italy under pressure

The market is awaiting the US election results. This is probably the cause of limited movements of the main currency pair. The dollar does not react to both positive signals (e.g. strong ISM reading from the services sector) and negative ones. As for the second one, further oil price drops can be counted, which help emerging market currencies and harm the USD.

A result close to current electoral estimates should not have a marked impact on the dollar's quotations. Only extreme scenarios can trigger stronger movements on the dollar. Maintaining power in the House of Representatives and the Senate by the Republicans is probably a positive signal for the dollar, and the Democratic takeover of the entire Congress is likely to weaken the US currency (less chance of fiscal stimulation, less confrontational approach to foreign policy, even though the White House is responsible for trade issues).

Apart from the issues related to the US elections, it is worth paying attention to Italy. Today's PMI publication raises concerns about the future of Italy's economy. The production index linking services and industry fell to 49.3 points. Meanwhile, the limit of 50 points separates development from regression. At the same time, it is also the lowest result in less than 6 years.

Italy is also in the spotlight of EU leaders. Yesterday's meeting of the Eurogroup (Finance Ministers of the single currency area) brought many comments suggesting that Italy should change its budget. It is possible that today's Ecofin (Finance and Economy Ministers of the whole Union) will also have similar voices. In general, Italy still has one week to submit a modified spending plan for the next three years. Meanwhile, the market is rather doubtful about a positive solution (yields of 10-year government bonds were again above the 3.4% mark before midday), which could mean further political and economic problems for the eurozone.

Today's data from Germany is more optimistic. Orders in the industry increased slightly on a month-to-month basis and were expected to shrink. The August data was also revised upward. The final PMI reading from Germany was also better. Although these changes do not predict a strong economic recovery in Q4, they suggest that sentiment in the economy in Germany is not worsening.


Changes in currency exchange rates are quite limited on the Polish market. The dollar remains 0.02-0.03 PLN below the 3.80 boundary and the euro is quoted close to the 4.31 PLN level. It seems that, apart from the extreme scenario, it is unlikely that the election results in the USA will change the zloty's situation in any way.

Tomorrow's statement from the Monetary Policy Council may bring more changes. It is likely that GDP growth forecasts will be revised downward, for example, due to the worse condition of the rest of the world or poor readings of PMI indexes. If, in addition, it is supported by the Council's more pronounced withdrawal from the perspective of interest rate increases, the zloty may depreciate. In general, however, the baseline scenario is to leave current levels around and wait for strong external impulses.

6 Nov 2018 13:59|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

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