The British currency is clearly overvalued by an increasing risk of Brexit. The peripheral states of the euro zone are in a weaker condition. The ISM reading from the American economy. The Polish PMI is positive, but the OECD cuts the growth forecast for this year, and increases deficit for 2017. The difference between the treasury bonds of Poland and Germany are at their highest level in more than two years.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
16.00: ISM reading from the American economy (estimations: 50.3 points).
New surveys bring a clear overvalue of the pound
In Monday’s Afternoon Analysis, we took note that the pound market had become too optimistic regarding the reduction of the Brexit risk. This optimism was a result of two phone surveys from May 16th and 22nd. According to Ipsos MORI and ORB, the opponents of Brexit had an 18% (May 16th) and 20% (May 22nd) advantage.
We have also written that the subsequent surveys (also conducted via phone) did not confirm such a significant change of the trend. The results from Survation on May 24th suggested only 7% advantage of the EU supporters. Moreover, online surveys by YouGov and BMG indicated a draw.
The above remarks have been confirmed by the latest publications. The ORB phone survey that was completed on May 29th, showed that the advantage of the EU supporters decreased from 20% to 9%, in just one week. However, the ICM surveys made via phone, as well as online, definitely caused more anxieties.
The ICM online survey showed a 3% advantage of the Brexit supporters. However, the most interesting fact is the advantage of the Brexit supporters in traditional surveys as well (2%).
On May 15th, the ICM phone survey was showing a 9% advantage of the EU supporters. The result was similar in the survey by ICM from April 17th. Moreover, the most recent result is the weakest phone survey since at least October 2015.
Of course, a few surveys do not determine a clear risk of Brexit. However, the trend from the past few days is clearly unfavorable for the EU supporters. Moreover, the referendum is only three weeks away. Thus, the nervousness in the market would grow as it is, and more negative surveys are only increasing the element of uncertainty.
The GBP/USD pair decreased by approximately 200 pbs since Monday afternoon. Moves on the pound can also be observed in relation to the zloty. At the beginning of the week, the British currency was slightly below the 5.80 level. Currently, it is 0.10 PLN cheaper.
The market will probably be extremely sensitive on the new surveys in the coming days, especially those made in traditional methods. If it appears that the Brexit supporters are growing strong, a further overvalue of the British currency will become more likely. The tendency from the online surveys will also be helpful, especially if the results from the same research centers show an increasing advantage of the EU supporters.
Worse PMI from peripheral states
Markit had published the final industrial PMI data from the euro zone for May. A general reading for the euro zone does not differ from the initial reading. However, the deteriorating conditions of peripheral states may attract attention. Especially considering the fact that during the past few quarters their results were better than the results of Germany or France.
The Italian PMI decreased to its three-month minimum, the Spanish PMI decreased to its seven-month minimum, and the Irish PMI reached its thirty-four-month pits. In his comment regarding the Italian data, Markit economist Phil Smith, took note that the growth of export data is the lowest since October 2014.
Andrew Harker, senior economist of the Markit wrote about the Spanish publication, saying that, “the industrial data is reaching a stagnation level.” Moreover, it suggests that, “the current expansion period may be coming to an end.” Considering the recent continuously weak readings from France, it is possible that the coming quarters in industry may be weaker, even though the consumption demand is relatively strong. Moreover, the business cycle in the oil exporting countries is expected to improve.
A few words about the foreign market
Due to a holiday in the USA on Monday, there will be no ADP publication today. This publication gives a certain hint regarding Friday's data from the Labor Department. However, the ISM reading from the American industry is scheduled for today. Considering quite weak PMI data from the Chicago region that was published yesterday, as well as the worst initial PMI publication since 2009, it is possible that ISM will return below the 50 level. This will probably extend the correction of recent growths of the American dollars.
Positive PMI and negative OECD forecasts
At the beginning of the day, we have received positive PMI data. According to the Markit studies, the Manager's Index for the Polish industry increased to the 52.1 level in May, from the 51.0 level in April. The description of particular components was positive as well. The pace of new orders increased, and it was, “slightly faster than the long-term studies average.”
Markit also writes that, “in May, the employment level increased for the thirty-fourth month in a row, due to an intensified inflow of orders, as well as restructuring of companies.” The production accelerated as well. Thus, the general data was positive. This confirms that the first quarter was probably a temporary disturbance.
The most recent OECD forecasts bring some uncertainty to the above scenario. It reduced the growth for 2016 from 3.4% to 3.0%. Moreover, the forecast increased deficit of public finance sector for 2017 from 3.0% to 3.2% GDP. A positive bit information is the fact that the deficit for 2016 has been decreased from 3.0% to 2.6%.
There was no clearly negative reaction on the zloty. However, it is worth noting that the difference between profitability of the 10-year bonds of Poland and Germany has exceeded 3%. This is its highest level since February 2014. This fact may be negatively interpreted by the currency market participants in the future. It may also cause a depreciation pressure on the PLN.
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.
The British currency is clearly overvalued by an increasing risk of Brexit. The peripheral states of the euro zone are in a weaker condition. The ISM reading from the American economy. The Polish PMI is positive, but the OECD cuts the growth forecast for this year, and increases deficit for 2017. The difference between the treasury bonds of Poland and Germany are at their highest level in more than two years.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
New surveys bring a clear overvalue of the pound
In Monday’s Afternoon Analysis, we took note that the pound market had become too optimistic regarding the reduction of the Brexit risk. This optimism was a result of two phone surveys from May 16th and 22nd. According to Ipsos MORI and ORB, the opponents of Brexit had an 18% (May 16th) and 20% (May 22nd) advantage.
We have also written that the subsequent surveys (also conducted via phone) did not confirm such a significant change of the trend. The results from Survation on May 24th suggested only 7% advantage of the EU supporters. Moreover, online surveys by YouGov and BMG indicated a draw.
The above remarks have been confirmed by the latest publications. The ORB phone survey that was completed on May 29th, showed that the advantage of the EU supporters decreased from 20% to 9%, in just one week. However, the ICM surveys made via phone, as well as online, definitely caused more anxieties.
The ICM online survey showed a 3% advantage of the Brexit supporters. However, the most interesting fact is the advantage of the Brexit supporters in traditional surveys as well (2%).
On May 15th, the ICM phone survey was showing a 9% advantage of the EU supporters. The result was similar in the survey by ICM from April 17th. Moreover, the most recent result is the weakest phone survey since at least October 2015.
Of course, a few surveys do not determine a clear risk of Brexit. However, the trend from the past few days is clearly unfavorable for the EU supporters. Moreover, the referendum is only three weeks away. Thus, the nervousness in the market would grow as it is, and more negative surveys are only increasing the element of uncertainty.
The GBP/USD pair decreased by approximately 200 pbs since Monday afternoon. Moves on the pound can also be observed in relation to the zloty. At the beginning of the week, the British currency was slightly below the 5.80 level. Currently, it is 0.10 PLN cheaper.
The market will probably be extremely sensitive on the new surveys in the coming days, especially those made in traditional methods. If it appears that the Brexit supporters are growing strong, a further overvalue of the British currency will become more likely. The tendency from the online surveys will also be helpful, especially if the results from the same research centers show an increasing advantage of the EU supporters.
Worse PMI from peripheral states
Markit had published the final industrial PMI data from the euro zone for May. A general reading for the euro zone does not differ from the initial reading. However, the deteriorating conditions of peripheral states may attract attention. Especially considering the fact that during the past few quarters their results were better than the results of Germany or France.
The Italian PMI decreased to its three-month minimum, the Spanish PMI decreased to its seven-month minimum, and the Irish PMI reached its thirty-four-month pits. In his comment regarding the Italian data, Markit economist Phil Smith, took note that the growth of export data is the lowest since October 2014.
Andrew Harker, senior economist of the Markit wrote about the Spanish publication, saying that, “the industrial data is reaching a stagnation level.” Moreover, it suggests that, “the current expansion period may be coming to an end.” Considering the recent continuously weak readings from France, it is possible that the coming quarters in industry may be weaker, even though the consumption demand is relatively strong. Moreover, the business cycle in the oil exporting countries is expected to improve.
A few words about the foreign market
Due to a holiday in the USA on Monday, there will be no ADP publication today. This publication gives a certain hint regarding Friday's data from the Labor Department. However, the ISM reading from the American industry is scheduled for today. Considering quite weak PMI data from the Chicago region that was published yesterday, as well as the worst initial PMI publication since 2009, it is possible that ISM will return below the 50 level. This will probably extend the correction of recent growths of the American dollars.
Positive PMI and negative OECD forecasts
At the beginning of the day, we have received positive PMI data. According to the Markit studies, the Manager's Index for the Polish industry increased to the 52.1 level in May, from the 51.0 level in April. The description of particular components was positive as well. The pace of new orders increased, and it was, “slightly faster than the long-term studies average.”
Markit also writes that, “in May, the employment level increased for the thirty-fourth month in a row, due to an intensified inflow of orders, as well as restructuring of companies.” The production accelerated as well. Thus, the general data was positive. This confirms that the first quarter was probably a temporary disturbance.
The most recent OECD forecasts bring some uncertainty to the above scenario. It reduced the growth for 2016 from 3.4% to 3.0%. Moreover, the forecast increased deficit of public finance sector for 2017 from 3.0% to 3.2% GDP. A positive bit information is the fact that the deficit for 2016 has been decreased from 3.0% to 2.6%.
There was no clearly negative reaction on the zloty. However, it is worth noting that the difference between profitability of the 10-year bonds of Poland and Germany has exceeded 3%. This is its highest level since February 2014. This fact may be negatively interpreted by the currency market participants in the future. It may also cause a depreciation pressure on the PLN.
See also:
Afternoon analysis 31.05.2016
Daily analysis 31.05.2016
Afternoon analysis 30.05.2016
Daily analysis 30.05.2016
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