Daily analysis 06.07.2017

The Fed minutes were slightly less hawkish than expected. A series of macroeconomic publications from the US may shape the dollar’s sentiment. The zloty gained value during yesterday afternoon’s trading, but in the morning the EUR/PLN returned toward 4.24-4.25.

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

• 14.15: ADP data on private payroll change (survey: 185k),
• 14.30: Weekly jobless claims from the US (survey: 243k),
• 16.00: The ISM non-manufacturing reading from the US (survey: 56.5 points).

No hawkish surprises in the minutes

Yesterday’s publication of June’s FOMC meeting minutes didn’t create dollar appreciation. The Fed seems to be divided on the recent inflation fall, asset market situation and the exact moment to start reducing the balance.

While the majority of the FOMC participants suggest that the most recent inflation fall is caused by transitory factors (lower telecom and prescribed drug costs) and will have a limited impact on prices in the medium term, some claim that the progress toward a 2 percent goal may be delayed if the current slowdown persists.

In other sections of the minutes, there were also many mentions of inflation. Despite the fact that views concerning reaching the target dominated, the recent slowdown contributed to additional uncertainty.

The balance sheet issue dominates the view that the normalization process will begin in 2017. However, several members would like to start it within a couple months. Still, the base case scenario concerning the balance sheet normalization will be in September’s meeting.

In summary, Yellen’s press conference seemed to be a bit more hawkish than the minutes. It was mainly on the recent inflation fall, which was clearly identified as “transitory.” Moreover, the discussion wasn’t really hawkish concerning the balance sheet normalization policy. Finally, the yields on US treasuries fell slightly as the market closed.

Interesting afternoon

Due to market closure on Monday, some macroeconomic publications have been moved to Thursday. Traditionally the ADP reading is on Wednesday, however this month it is expected to hit the wire today. Theoretically, the publication is a relatively good predictor of the real situation on the job market as its probe is much higher than the Labour Department’s. Additionally, it should also be a fairly good projection of the scale of employment changes regarding the official “payrolls.”

Recently, however, the ADP data failed to bring any hints of the NFP’s reading. As a result, market participants seem to be focused on the official Labour Department readings. Today’s data will have to deviate markedly from median projections (185k) in order to bring more volatility. The manufacturing counterpart is strong, so the services benchmark may be pushed closer to the 60 mark and push the dollar even higher. Regarding data close to the consensus, investors will probably shift their attention to Friday’s payroll data.

Short term rebound

The domestic currency clearly strengthened yesterday. The PLN appreciated after the MPC’s conference. It is hard to say which exact elements investors focused on, but some suggestions from Professor Gatnar and Dr. Zubelwicz increased the odds that the discussion on the monetary tightening may begin earlier than expected. Gatnar was mainly concerned about the negative interest rates impact while Zubelewicz seems to prefer to raise the benchmark earlier than later.

Despite the fact that Governor Glapinski confirmed his view on keeping the rates unchanged until the end of 2018, he didn’t rule out that the discussion about tightening may begin in mid-2018. The EUR/PLN finished the day close to the 4.23 mark.

In the morning, however, the EUR/PLN returned to the 4.24-4.25 range. This is partially due to higher yields on German bonds and the common currency appreciation. If afternoon data from the US turns out to be solid, the dollar may return toward the 3.75 level.