Daily analysis 01.09.2017

Low expectations for future US interest rates. Industrial PMI from Greece on 9-year highs. US data is important, but the chance of a breakthrough in the dollar has been still limited. The condition of the Polish industry is worse than expected, but the zloty remains relatively stable. The EUR/PLN pair close to the 4.25 level and the dollar below 3.60 PLN.

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

• 2.30 p.m.: Situation on the US labour market in August. Payrolls in the non-farm sector (estimated at 180k). Change in hourly wages (estimates: 2.6% YOY and 0.2% MOM). Unemployment rate (estimates: 4.3%),
• 4:00 p.m.: August's IMS index in the US industry (estimates: 56.5 pts.).

The market does not believe in rate hikes in the US

Yesterday early in the afternoon, the market tried to play in favour of macroeconomic readings from the US. Actual data, however, to a very small extent (taking into account revisions) deviated from the economists' estimates. This affected both the income/spending of Americans and PCE inflation. The price increase in July in the base and general terms was 1.4% YOY and 0.1 MOM.

The lack of positive surprise caused the dollar to incur losses overnight and US session closed at the EUR/USD pair above 1.1900 boundary. The analogous movement could be observed on debt instruments. Yields on bonds maturing in 5-years fell to around 1.70%, or 3 basis points, compared to the preliminary reading of macro data releases in the US.

It is also worth noting, that the market is less and less convinced of the further path to tightening monetary policy in the US. There is only 34% probability that there will be a 25 basis points increase in the cost of money by the end of the year. In addition, until January 2019 the market does not fully measure the whole increase by 25 basis points (currently 22.7 basis points). As long as these expectations do not increase (positive surprise with macro data, concrete announcements of changes in the tax system, etc.), the dollar will be hard to reverse the current downward trend.

Positive manufacturing PMI from the UK and with 9-year highs in Greece

In the morning, IHS Markit published the final PMI for the industry of the largest eurozone countries and readings from other economies of the European Union. Positively surprised data from the UK. The activity index of the British industry increased to 56.9 pts. It was almost 2 pts more than the consensus.

The PMI index from the United Kingdom is also positively presented. "Production has grown at the fastest pace in 7 months," the pace of creation of payrolls has grown fastest since June 2014, and new export orders were among the highest since January 1996. Overall, the data has been positive for sterling, as it may indicate a better UK economy condition than expected. The response to the pound, however, was limited due to persistent concerns about the further course of the Brexit negotiations. However, if this issue started to step back (at least temporarily) macroeconomic support could be expected and also even more lively discussion on rate highs increase by the Bank of England.

Today's IHS Markit publications have also covered other EU countries that are not included in the preliminary reading. Most of the data was good. Industrial PMI of Austria, the Netherlands and Italy rose to 78 monthly highs. It is also interesting that according to PMI index, the condition of Greek industry is the best since 108 months, so since August 2008. Additionally, the pace of payrolls' creation has accelerated to the highest levels since January 2000. Therefore, it is clear that the cyclical economic recovery in the eurozone and in the world improves the situation even in the weakest regions of the single currency area.

Weaker PMI index. Attention focused on US data

At the beginning of the European session, manufacturing PMI index data was published. The reading was below the consensus (52.5 points vs 53 points). Also, the description of the data was not particularly positive. Production growth was below the trend of 2017, and employment growth levelled the lowest reading in 34 months noted in June.

The zloty's market did not react to this data. The national currency is still far more sensitive to global sentiment than to national reports. Yesterday's rising US session combined with the fall in yields on US Treasuries were the best way to maintain a relatively strong PLN exchange rate.

In the afternoon the market will be waiting for important data from the ocean. The most significant will be readings on wages changes. Considering a relatively low base last year and a solid MOM rise in July, there is a chance of exceeding consensus at 2.6% YOY. These figures, however, would also need to be linked to good payrolls (+200k) and a decline in unemployment or at least an increase in the rate of participation index. Only then could be expected a stronger, positive reaction on the dollar, the EUR/USD fall clearly below the 1.1900 boundary or USD/PLN up to approx 3.60.

However, if the data from the US does not surprise the US dollar, it will be difficult to pare some losses, especially with so low expectations of Federal Reserve rates. As a result, also the PLN, unless there is a clear surprise from the United States, should remain relatively stable.