Daily analysis 04.10.2017

04.10.2017 12:25|Bartosz Grejner

The activity indexes (PMI) for the eurozone are in line with expectations, but retail sales noted the most significant drop in August since December. The zloty appreciated before today's statement and press conference of the Monetary Policy Council.

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

  • 4:00 p.m.: Statement and press conference of the Monetary Policy Council,
  • 4:00 p.m.: September's ISM index for the service sector in the US (estimates: 55.3 pts),
  • 7:15 p.m.: Mario Draghi's speech in Frankfurt, the President of the European Central Bank,
  • 9:15 p.m.: Janet Yellen's speech in St Louis, the President of the Federal Reserve.

Limited fluctuations on the EUR/USD pair

September's, final data on activity index (industry and services sectors) in the eurozone was not in line with previous estimates (56.7 pts). A slightly higher (by 0.2 pts from the preliminary data) index for the service sector turned out to be 55.8 pts, at the same time reaching its highest level since May this year. On the other hand, August's data on retail sales in the eurozone failed market expectations.

Compared to August last year, retail sales increased by 1.2%, significantly worse than market expectations at the 2.6% level. It was the lowest growth pace since December 2016. Compared to July, there was even a drop in sales by 0.5%, although the market consensus assumed a growth of 0.3%. This was the second consecutive month of decline in sales on a monthly basis and the highest since December last year when a decrease was also recorded by 0.5%.

The influence of the aforementioned data on the euro's trading may not be significant, however, after reaching the 1.178 level by the EUR/USD pair, the main currency pair's quotations fell to approx. 1.175 level. The absence of further euro's appreciation was probably caused by a relative divergence from the consensus data on retail sales. In the end, however, more attention may be drawn to other events.

Although Friday's report from the US labour market seems to be the most important publication this week, even today some events may cause the increase in the currency market's volatility. At 2.15, ADP data on the US employment in the private sector will be published, which may give some hints on what level to expect Friday's official data from the US Labor Department. Historically, with increased volatility reacted the dollar to the ADP publication.

During the evening hours, the President of the European Central Bank Mario Draghi and the President of the Federal Reserve Janet Yellen will give speeches. However, the chances of referring to monetary policy in both cases, which could lead to significant changes in the dollar or euro, seem to be limited.

Yellen gives the speech at the Social Banking Conference in St. Louis, while Draghi will address the preliminary speech at the inauguration of the ECB Visitors' Centre in Frankfurt. Although an increase in rates' volatility can be observed around the time of speeches (Yellen 9:15 p.m., Draghi 7:15 p.m. CET), their content is likely to be focused on other issues, which reduces the chances of a significant change in the euro or dollar exchange rates.

Polish currency appreciated before the Polish MPC press conference

In the morning, we observed the zloty strengthening against the main currencies. A partial factor responsible for this may be the stop in dollar appreciation, which has been recently accompanied by a decline in zloty value. In addition, some of the market participants may expect a slightly more hawkish tone from the Monetary Policy Council in today's statement and/or press conference (4:00 p.m.).

Recently, higher than expected data on inflation, GDP growth pace, retail sales or industrial production may give the Council arguments to suggest the possibility of earlier monetary tightening than has been announced before (at the last conference even was discussed the maintenance of the rates unchanged until the end of 2018).

It should be noted that main central banks in the world (in the US, the eurozone or the UK) are tightening monetary policy, or at least its perspective is relatively close. In this case, the maintenance of accommodative monetary policy by the Polish central bank may put pressure on the zloty. Around midday, the EUR/PLN pair quotations were at the 4.30 level. However, the zloty valuation mainly depends on movements on the dollar, a more hawkish statement from the Polish MPC could strengthen the zloty and push the euro exchange rate significantly below current values.

 


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