Daily analysis 05.06.2017

The dollar remains weak after Friday's worse-than-expected data from the US labour market. Readings from the UK are weaker, but the market is mainly focused on Thursday's parliamentary election. The zloty remains stable not only to most major currencies but also in relation to the forint.

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

• 16.00: Factory orders in the US (survey: - 0.2% m/m),
• 16.00: ISM non-manufacturing from the US (survey: 57.1 pkt).

The dollar remains under pressure from the US data.

On the market, the impact of weaker than expected data from the US labour market is still visible. We often note that a single Labour Department reading should not be considered as an element changing the multi-month or multi-annual trend. Now, however, given the relatively low inflation data and weak 3M average, we can see that the next week FOMC meeting may be fairly cautious.

It is worth pointing out that on Friday not only did the number of payrolls fail to meet expectations. With the revisions, the 3-month NFP average dropped to 120k. It probably does not correspond to the previous expectations made by FOMC members. The situation would have looked differently if low number of news jobs was combined with a significant rise of wages. It would mean there is a pressure for higher interest rates and inflation. This is, however, not a case currently.

The unemployment fall should also be regarded negatively (separate household survey). It was caused by the fall of people looking for a job, but not by people finding one. The negative outcome was confirmed both by the fall in participation rate and employment to population rate. Still we have to remember that this data is even less accurate that the “payrolls” (only 60k households participate in the survey. In Poland it is 55k with almost 10 times lower population). On the other hand, however, the Fed will not have any other major job market data next week so it has to take into the account the BLS reports.

The US treasuries reaction to the data was fairly strong on Friday. Their 5 year yields fell 5 basis points to around 1.70%.These are the lowest levels since mid-November 2016. During the first part of the European session the yields rebounded around 2 basis points, however, the may may remain quite low until the Fed’s meeting scheduled from the next week unfold.

The UK’s election and PMI readings

The British polls are still painting somewhat inconsistent picture. Today’s survey published by the ICM and The Guardian shows that the Tories will have 11 percentage lead on the leading opposition party. However, the ICM publications in the recent weeks show more optimistic outcome from the May’s parting than other researchers.

During the weekend Survation and “Mail on Sunday” published a poll with a very slim lead of the Tories. It was only 1 percentage point. The results from the YouGov model are also negative from the current ruling camp with only 4 percentage point lead from the conservatives,. The model also estimates that May’s party will receive 308 seats in the lower house of parliament. It is 18 seats short of the majority.

In the morning, IHS Markit and CIPS published the UK’s PMI services reading. It dropped to 53.8 points with expectations around 55 level. The study highlights "a softer pace of new order growth, which survey respondents linked to squeezed household budgets and, in some cases, delayed decision making among clients ahead of the General Election”. However, the data did not affect the sterling valuation, as in the following investors will focus more on the elections than economic data.

Stable on the zloty

The zloty, in line with forint, remains stable in a limited range of moves in relation to the euro. The EUR/PLN is close to 4.18 while the PLN/HUF is traded around 73.50. On the other hand, the global weakness of the dollar pushed the USD/PLN to the lowest levels since October 2015. Concerning the election issues in the UK and the related implications for the Brexit the pound remains around 4.80 mark.

A fairly limited impact on the Polish currency should be seen from the MPC meeting scheduled for Friday. The Council will probably emphasise that the economy on a stable growth path in line with their expectations. The members are also expected to suggest from the new Inflation Report from the Central Bank which is due on July. There is still a limited probability that the MPC will change any parameter of the monetary policy in the incoming future.