Daily analysis 05.08.2016

The pound stabilizes at low levels. The most important element in today’s job report may be a scale of earnings rise. The zloty remains stable to most currencies and the GBP/PLN is slightly above yesterday’s lows at 5.05.

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

• 14.30: Payroll change from the US (survey: +180k). Unemployment rate (survey: 4.80). Weekly change in hourly earnings (survey: +2.6% y/y and +0.2% m/m)

Current macroeconomic data key for the pound

The cable trading stabilized at the mid-1.31 level after a much more dovish than expected message from the BoE (details in the yesterday’s afternoon analysis). The GBP/PLN pair is seen in a narrow range around 5.06-5.07, which is slightly above the more than two-year lows that were recorded on Thursday.

Taking into the account the whole message from the BoE, (statement, “minutes”, Mark Carney’s comments, the voting structure and Inflation Report) we should expect that the MPC will not hesitate to increase the QE if the incoming data fails to meet central bank expectations.

As a result, the key message for the sterling will be the data from the UK economy. We would also argue that the reaction may be skewed. It means that fairly good numbers will probably fail to boost the pound significantly and weaker may push it to the new lows. In the following weeks, the data will mostly be for June (industrial production, trade, construction) so the impact doesn’t have to be that strong.

Overall, the perspective for the pound remains negative especially considering that the negotiations that deal with Brexit havn’t even started. Moreover, we are fairly sure that they will be long and intense and the outcome would not be known for months. Combining this with a fairly weak economy, they should push for further monetary speculation and still keep the pressure on the sterling.

Wages are key

Investors are scheduled to focus on the US job report in the afternoon. The market usually tracks three key elements – new payrolls, the unemployment rate and the scale of wage changes.

In our opinion taking into the account the ADP report, even if payrolls will fail to meet market expectations, would be a more statistical than economical issue. We have written about this many times and it actually turned out to be true when the weak May data was followed by a great reading for June.

The same reasoning can be implemented into the unemployment rate. Taking into the account that the US economy creates around 150k jobs a month, the rate should be on the slight downward trend, but the speed of the fall does not directly correlate to the “payrolls” because the numbers are taken from different surveys.

As a result, the key in today’s report may be the wage figure. The consensus assumes that it should rise around 32.6% y/y. Taking into the account the readings in the previous years, this is quite a lot. Additionally, if it exceeds this value just by a 0.1 percentage point, it would be pushed toward the highest levels since June 2009.

Higher wages should induce an upward pressure on inflation. Although it probably will not cause a significant acceleration of monetary tightening by the Federal Reserve, when the next reading of the GDP will return to significant growth, thanks to stronger alignment recent declines in inventories, the wage growth should serve as a good argument to raise interest rates.

However, even if the job market report turns to be quite solid, the perspective for a stronger dollar remains limited due to weak GDP reports - which close the possibility to suggest any interest rate hikes in the incoming meeting.

Stable on the zloty

The situation on the zloty has changed little over recent hours. The EUR/PLN has been traded around 4.30, the Swiss franc is worth around 3.95 PLN, while the dollar is around 3.85. Taking into the account that the “payrolls” should not significantly affect the global situation, the reaction on the franc, the pound and the euro to the zloty should be fairly benign.

Some more volatility will probably be observed on the dollar. On one hand, the solid readings on wages with at least a neutral value on other components from the Labour Department should push the USD/PLN to around 0.5%. On the other, if the overall data turns out to be weaker the USD/PLN may even fall toward 3.82 in short term.