Daily analysis 03.03.2017

Positive macroeconomic data from both Germany and the euro zone, but the British data is disappointing. Jerome Powell sustains the market expectations for rate hikes in March. The market is anticipating Janet Yellen’s comments. The EUR/PLN is near 4.30 and the USD/PLN is in the area of 4.10.

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

• 16.00: The American services ISM for February (estimates: 56.5).
• 18.30: Stanley Fischer will participate in the discussion regarding the monetary policy, during a forum organized by Chicago Booth School in New York.
• 19.00: Janet Yellen’s testimony regarding economic topics, organized by Executive Club of Chicago.

Germany, euro zone and United Kingdom

Today, the European session started with positive data from Germany. The retail sales increased 2.3% YoY, against the expected 0.7% growth. Moreover, very negative data for December has been revised from negative 1.1% to positive 0.4%. However, no significant acceleration of German economy is in sight, for the time being. The 2.3% level is exactly the average result from the past twenty-four months.

Markit IHS confirmed a positive PMI reading for February. The general level of the euro zone’s industrial, as well as of the services sector is currently at its seventy-month maximum. Moreover, the readings from France, Italy and Spain were positive as well. The business activity index for February only decreased in Ireland. Nevertheless, it was still at a very high level (57.8 points).

In his commentary to the data, Markit IHS senior economist, Chris Williamson, wrote that, “growth accelerated in all of the four largest member states in February to suggest an increasingly sustainable and robust-looking upturn.” Williamson also took note that both France and Germany are on the path of the approximately 0.6% QoQ GDP growth in the first quarter. Moreover, Spain may achieve the level of 0.7% QoQ. However, taking into consideration the current attitude from the ECB, this data will most likely be relatively neutral for the euro.

The British data was disappointing. The services PMI went down from 54.5 points to 53.3 points, against the 54.1 points consensus. Moreover, the collective index for industry and services is clearly lower than it was in January (53.8 vs 55.6). This was negative for the pound, which has recently been weakened by the discussion regarding a possibility of the independence referendum in Scotland. Today, the pound was at its one-month minimum against the euro and its two-month minimum against the dollar. Moreover, it was also testing the area of 5.00 PLN.

Powell and Yellen

Yesterday afternoon, CNBC conducted an interview with Jerome Powell. His comments were very similar to the most recent statements from the other FOMC members. Additionally, Powell sustained his opinion that there should be three rate hikes in 2017 and asked about a potential fourth hike, he claimed that this depends on the economic growth.

Of course, Janet Yellen’s testimony is today’s main event (19.00 CET). However, we need to assume that she will sustain the standpoint of her associates. The entire series of the most recent testimonies from the FOMC members were relatively consistent (regardless of whether a member is hawkish or dovish.) It seems that this has been planned all along, in order to prepare investors for rate hikes. Judging from the behavior of treasury bonds, this strategy has been successful and the Fed can increase interest rates in March without causing any significant market disturbances. Therefore, they may take advantage of this, if the forthcoming data is positive.

Dollar is near 4.10

Both yesterday’s and morning’s quotations of the zloty indicated that it’s in a better condition than the rest of the region’s currencies and that it may be more resistant to external signals. However, the zloty’s strength has decreased over the following hours. As a result, the PLN/HUF decreased by approximately 0.3% and the euro went above 4.31 PLN. Moreover, the USD/PLN tested the 4.10 level, which is its highest since mid-January.

The zloty’s quotations will be determined from Janet Yellen’s testimony. In our opinion, the Fed chairwoman may confirm the will of a wide discussion regarding rate hikes in March, but doesn’t have to determine this move. Therefore, the dollar should sustain its recent growth and maybe even gain value. This would increase the chances that the USD/PLN will end this week above the 4.10 level.