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Daily analysis 02.06.2017

2 Jun 2017 12:32|Marcin Lipka

The market continues to ignore positive US data and statements from Fed members. Therefore, the Labor Department report must be very positive to alter the ongoing trend. The zloty has been weaker, but volatility remains fairly limited. The EUR/PLN remains below 4.20.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: US labor market data for May: average wage (estimate: positive 2.6%); unemployment rate (estimate: 4.4%); new workplaces in non-agricultural sector (estimate: 182k).

Investors ignored data

Yesterday, we received very positive data from the US economy. According to the ADP, the amount of workplaces in the private sector increased by 253k, which was approximately 70k more than estimated. A fairly large amount of workplaces were created in medium-size companies and production companies (48k). However, no categories were significantly inconsistent with the consensus.

The American industrial ISM was also positive. Even though its growth was only slightly higher than the consensus (54.9 vs 54.8), its components were more optimistic than they were previously. New order components reached the level of 59.5 points and employment components increased 53.5 points. Therefore, both ADP and ISM reports should be positive for the dollar.

Yesterday’s comments from Jerome Powell could have been supportive for the USD as well. Powell told the CNBC that there are still arguments in favor of gradual rate hikes. He also estimated that two rate hikes for this year would be a right thing to do, as long as the economy continues developing in consistency with estimates.

In spite of this positive information, the dollar’s appreciation has been fairly minor. The EUR/USD went approximately 20-30 pips below yesterday’s level and has been remaining above the 1.1200.

Will the Labor Department data be ignored too?

The aforementioned attitude towards the US economy may suggest that today’s data from the US Labor Department will also meet with a sceptical approach. However, the bond market shouldn’t estimate an extremely mild monetary path, if both the data and the statements from the FOMC members suggest rate hikes.

Therefore, we should assume that the positive data will strengthen the dollar to a more significant degree than it has been observed yesterday. Nevertheless, these readings would have to be extremely positive to alter the ongoing trend. This means at least a 2.7% YoY increase in the average weekly wage (estimates: 2.6% YoY), more than 200k-220k new workplaces (estimates: 182k) and a minimum decrease in unemployment (both estimates and the previous reading: 4.4%). If this data is not positive in its entirety, investors will stick to their view that the recent low inflation readings most likely won’t improve soon, which would force the FOMC to cease the monetary tightening at certain point. This would be an argument in favor of the weak USD.

Zloty returning to previous flow

Yesterday afternoon was fairly negative for the zloty. The EUR/PLN increased to the level of 4.20 and the PLN/HUF went down to the area of 73.30. This was partially related to slightly negative data from the Polish economy (PMI), as well as to positive readings from the USA that could have caused the capital outflow from the emerging markets. Eventually, the dollar’s appreciation was fairly weak and the zloty regained a significant portion of its losses.

Today’s data from the USA will be essential for the zloty. The better the readings from the US Labor Department (both wages and new workplaces, in particular), the larger the chances for the zloty’s wear-off against both the euro and dollar. Nevertheless, taking into consideration the consistently high level of scepticism towards the further rate hikes in the USA, the aforementioned data would have to be extremely positive to take the USD/PLN to the area of 3.80.


2 Jun 2017 12:32|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:

1 Jun 2017 15:30

Afternoon analysis 01.06.2017

1 Jun 2017 12:09

Daily analysis 01.06.2017

31 May 2017 15:12

Afternoon analysis 31.05.2017

31 May 2017 12:23

Daily analysis 31.05.2017

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