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Daily analysis 05.01.2018

5 Jan 2018 12:26|Marcin Lipka

Good retail sales data from Germany at the end of the year, but the eurozone’s core inflation failed to meet expectations. The situation on the US labour market is still important, however, testing the sentiment rather than testing future economic condition is currently more relevant in this context. The zloty lost slightly in relation to the main currencies before the publication of US data. The EUR/PLN returned to 4.15-4.16.

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

  • 2:30 p.m.: December's data from the US labour market. The number of new payrolls in the US economy (estimate: 190k). The unemployment rate (estimate: 4.1%). Change in wages (estimates: 2.5% YOY and 0.3% MOM),
  • 4:00 p.m.: Orders in the US industry in November (estimate: 1.1% MOM),
  • 4:00 p.m.: ISM index from the US service sector (estimate: 57.6 pts).

German retail sales and eurozone inflation

During the first part of the European session, the single currency has depreciated slightly. The EUR/USD pair tested the 1.2050 level despite quite good data from the German economy. According to Destatis, in November, retail sales in Germany increased by 4.4% YOY in real terms (including inflation) and 6.2% YOY in nominal terms. Moreover, the statistical office indicates that in 2017, real growth was between 2.7 and 3.1% (nominal 4.5-4.9%). This is a good result, however in quantitative terms such as volume, it is a comparable to the 2016 result.

Eurozone inflation data was published in the morning. Consumer prices in the single currency area increased by 1.4% YOY in December (in line with expectations). However, core inflation remained at the lower level. Economist’s expectations indicated core infaltion growth to be 1.0% YOY, but it stayed at November's level (0.9% YOY). Also noted in December 2016 was the level of 0.9% YOY, which means that inflationary processes in the single currency area remained suppressed and this should be fundamentally negative information for the euro.

Readings from the US

A publication from the US Department of Labor is scheduled for the afternoon. As usual, investors will focus on new payrolls data (consensus at 190k), unemployment rate (estimate is 4.1%), and finally the widely observed change in wages (2.5% YOY).

Exceptionally weak data and significantly positive readings have the power to force logical market reactions, therefore weakening or strengthening the dollar. However, the reaction to a publication that is moderately worse or better than the consensus will be more interesting. This may indicate whether the negative sentiment towards the dollar will be maintained or whether this tendency has begun to vanish.

In the afternoon, in case of insufficient labour market stimulus, there will also be an ISM reading regarding the US services sector. If this data is as good as the industrial component (about 60 points), it can also be a good time to assess dollar sentiment. The recent analyses of softer elements (investors' movements) have been proven to be much better than macroeconomic signals that should support the dollar rather than harm it.

Slight zloty weakening

In the morning, the zloty slightly weakened. The euro and the dollar grew by about 0.01 PLN. On the other hand, relatively small changes were observed on the CHF/PLN pair, as the Swiss currency has also been slightly weak on the global market. In general, the zloty's condition is good and does not differ from movements of the forint.

Similar to the situation on the global market, readings from the US will be important for the Polish currency. However, as in the case of the EUR/USD pair, it seems that the market's reaction to a hypothetical data deviation from the consensus seems to be the most important. If it continues to favour the weakness of the dollar, then the zloty should also continue to be in a positive condition. On the other hand, if cracks appeared on the last trend of the US currency, then the rebound of the last increases to the PLN may be significant.

5 Jan 2018 12:26|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:

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Afternoon analysis 03.01.2018

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Daily analysis 03.01.2018

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