Daily analysis 06.05.2016

Risk aversion prevailed in the markets. The dollar dropped before the labor market data. The zloty pressured by negative sentiment. The president named Adam Glapiński to be Marek Belka’s successor.

The end of the week was negative for stock investors. The world markets posted the worst five days since February. The factors responsible for a negative sentiment were the poor report from China and mixed data from developed economies. Moreover, the Federal Reserve officials suggest two interest rate hikes in spite of the recent deterioration of the data.

The report on the labor market situation is scheduled for today. The release will help to better assess current developments within the labor market. Recently, both the ADP’s report on employment change and on unemployment claims missed the forecasts. Earlier, the report suggested that the labor market expansion is very strong in spite of weakness showed by other reports. The GDP growth and the industrial ISM report were especially very poor. In contrast, the service ISM report suggested some improvement.

All in all, if today's data suggests that a slowdown has hit the labor market, the Federal Reserve will face quite a hurdle. The US central bank may be forced by the economic reports and the situation in the financial markets to further loosen its stance. According to the futures market, only one hike is expected this year - in December, with a probability little above 50 percent. If that is a case, the dollar may be pressured.

According to the market expectations, employment increased in April by 200k. Data on wages growth will be an important release, which is expected at 0.3 percent on a monthly basis. The unemployment rate is forecast at 5 percent.

On Friday, the dollar was steady after three days of gains. Today's data will be decisive in whether the move will continue. The EUR/USD was little below 1.1420 against 1.1615 on Tuesday (the highest level since January 2015).

Zloty under pressure

On Friday, President Andrzej Duda named Adam Glapiński as the new President of the National Bank of Poland. Glapiński will replace Marek Belka. This scenario had been broadly expected, thus it did not affect the zloty. Given the recent comments from Adam Glapiński, it seems that he will advocate a rather conservative approach to the monetary policy.

The latest data from the Polish economy may push the Monetary Policy Council to adjust its stance. Industrial production and retail sales missed the expectations. Moreover, the PMI index suggested some slowdown. The inflation data also disappointed. The deflation rate stood at 1.1 percent against 0.9 percent in the prior month.

Today, the MPC decided to leave rates unchanged. However, the press conference of Marek Belka will be more important. If the NBP president signals a scope for adjustment, the zloty may be negatively affected. Given the situation, the probability of a stronger zloty remains rather low.