Daily analysis 02.12.2015

Lower inflation data from the eurozone decrease the significance of yesterday's ISM index from the American industry, (which was worst for over 6 years) regarding the American dollar. What can Mario Draghi announce in order to top the expectations? The zloty remains weak. Today's meeting of the MPC can be relatively interesting.

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

• 14.15: The ADP report from the American labour market (estimations: +190k).
• 14.10: Testimony of Dennis Lockhart, the Fed representative from Atlanta.
• 16.00: Press conference after the MPC meeting.
• 18.25: Testimony of Janet Yellen, chairwoman of the Federal Reserve.
• 20.00: Beige Book – information regarding condition of the economy in particular Fed's district.
• 21.40: Testimony of John Williams, chairman of the San Francisco Fed.

ISM from the USA and base case inflation from the eurozone

Yesterday's publication of the ISM index was quite astonishing. The accelerating index of the American industry depreciated to the lowest level since the second half of 2009. Additionally it depreciated below the limit of 50 points (48.6). This is the level which separates the given sector's progress from regress.

Report's details are also not optimistic. Subindexes of new orders and productions decreases to the area of 49 points. Additionally, according to the report every branch quoted a decrease in prices, and the costs' indicator decreased to 35 points. According to the surveys, the only positive element was an increase in employment. However, if the orders and production don't accelerate, the chances for creating new jobs will decrease.

Particular statements included in the ISM still show that the American industry remains under pressure of two factors – weakening foreign demand, and a pressure on the mining sector. The latter, according to the recent report from the labout market, decreased the amount of jobs by more than 100k within a year.

However, there is a small chance for yesterday's readings to change the approach of the leading Federal Reserve representatives, regarding the first increase in the American interest rates. On the other hand, weakness of industry can be an argument for some of the Fed representatives, to modify the future level of interest rates. It should reflect in macroeconomic projections. This could also be used to perform corrections on the dollar, especially if the Friday's payrolls' readings are disappointing.

Low inflation in the eurozone

Anxieties expressed by leading representatives of the ECB that regard possible difficulties in keeping inflation in limits of 2%, begin to fulfil. Today's publication of the Eurostat shows that an increase in consumer's prices with exclusion of fuel and food, decreased from the level of 1.1% y/y to 0.9% y/y. This fact can enforce the dovish fraction of the European monetary authorities, in its attempt to cross the market's expectations regarding Thursday's decision.

This action can be performed on a few ways. First of all, by greater than expected QE, or deeper cutting of deposit rate. However, it is possible that the ECB will decide to undertake less expected actions. For example, as Bloomberg writes referring to analysis of Michael Schubert from Commerzbank, the central bank may use the open program of quantitative easing. This would mean that easing would be continued, until there are some credible signals of occurrence of inflation in the mid-term.

Second of all, the ECB can use two deposit rates. It would visibly increase the possibilities of punishing the commercial banks for detaining money on the central bank's account. It is also possible that the deposit rate would be depreciated to the area of minus 0.5%.

A scenario in which the ECB extends the purchase of assets by the instruments of lower credibility or municipal bonds is also imaginable. This would also be a sign of determination of the European monetary authorities. It should have a negative impact on the euro in short-term.

Few words about the foreign marekt

Today, it is worth noting the ADP data regarding new jobs in the American private sector. If the publication is over 200k, it should be positive for the American currency. It is also possible that afternoon testimony of Janet Yellen will cause some variabilities. However, the Fed chairwoman will probably speak mainly of a possibility of raising interest rates in December. One should not expect any new information from Yellen, apart from those saying that monetary tightening in the future will be mild, and dependant on macroeconomic data.

MPC meeting can be important

Theoretically, the today's MPC summit does not seem very attractive. The market does not expect any movements regarding interest rates, and an ending term of office of majority of the Council's members, decreases significance of the current central bank's announcements. However, there is one element that could cause a visible pressure on the zloty.

According to the recording of November's meeting, “some members of the Council claimed that even though interest rates should remain unchanged on the upcoming meeting, a slight decrease in the following months cannot be excluded”. If a similar information is included in today's announcement, it could mean that the current Council is more and more convinced to depreciate the cost of the money. This on the other hand would open the door wider for the new members to perform monetary easing. It would be negative for the zloty. In such scenario it is possible that the EUR/PLN will reach the area of even 4.30.

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

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