Daily analysis 02.10.2015

The US job market is important but is it so crucial regarding the decision to hike interest rates this year? China has started to stimulate the economy slightly. New data regarding capital outflow from emerging markets. The zloty remains under sellers' pressure.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

• 14.30: Non-farm payrolls from the US (survey: 201k).
• 14.30: Remaining data from the US economy: manufacturing payrolls (survey: unchanged); unemployment rate (survey: 5.1% unchanged); wage changed (survey: +0.2% and +2.4% y/y).

Important data, but also for the Fed?

Today investors are expected to receive one of the most important data of the month – the employment reading. The market is mainly focused on non-farm payroll changes. In September, according to the Bloomberg consensus, the payrolls should increase by 201k.

If the publication turns out to be close to the consensus the market is expected to analyse other factors – unemployment, wages or manufacturing jobs. Solid employment data should give some boost to the dollar and keep downward pressure on the EUR/USD.

When “payrolls” increase over 220-230k and additionally readings from the previous months are revised upwards by more than 30k the odds for a slide towards 1.1100 on the EUR/USD are quite high. On the other hand, with weaker readings, below 180k, with no upward revision for the two previous months the EUR/USD may rise above 1.1200.

It is also worth noting that with weaker readings the upside move may be fairly short, and with a better publication the slide should be sustained. The Fed remains fairly convinced to hike the benchmark this year despite the fact that Q4 has just begun. It means that only a really weak number – below the 130-150 range might give some doubts regarding the hike. Additionally, there are also suggestions that such a strong payroll trend is not possible to sustain. To keep the unemployment level at 5.1%, according to the Atlanta Fed's calculator only 112 “payrolls” are needed. If the pace of new jobs remains at the current 12-month average the unemployment would drop to 4.2% which is significantly below the natural rate of unemployment. As a result, there has to be a moment when the pace of new jobs has to slowdown.

Another IIF data and mini stimulation from China

A few days ago, citing the Institute of International Finance (IIF) data, we wrote on capital outflow from emerging markets in Q3. This time the “Financial Times” writes about IIF data suggesting that this year may be the first one since the late 80s when capital outflows from the EM are on a net basis. Taking into account the repayment of debt, mainly from China, the outflow may even top 500 billion USD.

From China, however, there are some signs that Beijing would like to improve economic numbers. Authorities announced that tax on cars with engines below 1.6l are expected to be cut by half and the PboC decreases the down payment for mortgages from 30% to 25%.

So far, the moves don't look spectacular but China wants rather to make small steps and observe the economic reaction than just simply increase the infrastructural spending. Similar moves are expected to be announced in the following months.

The foreign market in a few sentences

The reaction on today's US data may be skewed. Slightly weaker publications might cause short and shallow dollar weakness because it should not significantly decrease the odds for the interest rate hike scenario till the end of the year. On the other hand, with data close to the consensus or better the odds for December hike should rise significantly which can even push the EUR/USD below 1.1100.

The zloty remains under pressure

The zloty's behaviour still shows that the Polish currency remains under pressure. It should be seen especially with the slides on the foreign equity markets. In this scenario the EUR/PLN may quickly rise towards 4.27-4.28 range.

Today, however, despite the fact that important readings from the US are scheduled the zloty should remain fairly calm. Capital markets experience some modest rises and the sentiment would have to deteriorate markedly to see the zloty lower. It is also worth noting that next week the Polish MPC is scheduled to conclude its two-day meeting. At this moment, the Council would not suggest any interest rate changes but some hints regarding the fact that the weakness of the local economy might be enough to evaluate the increasing odds for monetary easing at the beginning of 2016. It may be a strong fundamental reason to keep the zloty fairly low.

Anticipated levels of PLN according to the EUR/USD rate:

Anticipated GBP/PLN levels according to the GBP/USD rate: