Calm Tuesday on the market (Afternoon analysis 23.10.2019)

No significant macro publications or new developments on international trading or Brexit resulted in a quiet Tuesday on the global market. The zloty is slightly weaker, but this is a consequence of the recovery from the strong growths in recent weeks.

EUR/USD still above 1.1100

Until the start of the trading session on the New York Stock Exchange, Tuesday's trading was quiet. According to the Parliament's decision, Boris Johnson's law will not be proceeded at a rapid pace. This means a continuation of the uncertainty surrounding the Brexit and opens the way to new elections. Therefore, the scenario of uncertainty on the pound remains unchanged, although the conclusion of the agreement between Johnson's government and the EU itself was an unexpected and positive stimulus for the British currency. In the coming weeks, pound quotations may most likely be slightly less volatile if nothing surprising happens.

Today, the empty calendar of macroeconomic events helped to stabilise the broader market. The main currencies recorded only limited changes, the dollar index (DXY) remained practically the same as yesterday's closing, and the EUR/USD exchange rate remained above 1.1100 boundary. The main stock indexes in Europe changed only slightly, although their levels still remain close to the months-long highs. Lack of significant publications later this day (apart from the report on the fuel market in the USA, which is important for oil prices) will help to maintain low volatility.

The zloty was slightly weaker today, about 0.25% in the afternoon against the main currencies. However, this was not caused by internal weakness or domestic factors, but rather by a slight reaction of the recent strong growths. Apart from the GBP/PLN pair, the recent weeks have been very beneficial for the Polish currency, which was supported by the improvement in global sentiment. In relation to the dollar, the euro and the franc, the zloty remains close to three months high. Given the strong dependence of the Polish currency on external factors, it is unlikely that a strong weakening will be expected if we do not receive a number of negative stimuli for the global sentiment. These could be a tightening of rhetoric between China and the USA, or a more hawkish than expected FOMC statement next week. In both cases, however, this seems unlikely, which is why the zloty's quotations should be relatively stable.

Tomorrow's preview

On Thursday, the important macroeconomic readings for the eurozone will be published. IHS Markit will publish the preliminary data of the October PMI indexes in the morning (9:15-10:00 a.m.). Due to concerns about the economic condition of the eurozone, the market's attention may be mainly focused on these data, especially on readings from Germany. The German economy is primarily suffering from a slowdown in the world's industrial sector, a cyclical slowdown in the global economy, but also a trade war between the USA and China.

Last month, the services sector's PMI index, which so far has remained relatively stable, also declined. The median of market expectations indicates a slight increase (by 0.2-0.6 pts.) in PMI indexes of the largest European economies, including the eurozone as a whole. Slightly more significant deviations from the consensus (above 0.5 pts.) may increase market volatility. Given the recent increases in the equity market or the euro, clearly worse than expected data may significantly worsen market sentiment, adversely affecting assets perceived as more risky.

Tomorrow is the last meeting of the European Central Bank (ECB) with Mario Draghi as head of it. There will probably be no change in the basic instruments of monetary policy. However, Draghi may refer to the opposition regarding further monetary policy easing, as well as to the need for changes in fiscal policy. Market volatility may increase around the press conference (from 2:30 p.m.), although the final changes will be rather limited.

At 2:30 p.m., the Census Bureau will publish data on the US orders for durable goods in September. They may report something about industrial production in the coming months, although the correlation is not ideal and the data are subject to significant fluctuations. However, recent data on industrial production and retail sales in the US have failed the market expectations, which has also contributed to the current weakness of the US currency in recent weeks. Another dose of disappointment could put a little more pressure on the US currency, especially ahead of the much-anticipated FOMC meeting next week, where there are high expectations for interest rate cuts. The market consensus now assumes a 0.2% decline in the core index of orders (excluding transport) and entire orders by 0.7%.