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Daily analysis 06.10.2014

6 Oct 2014 13:15|Marcin Lipka

Solid US data accelerated the current trends on currencies. Germany's economy again below expectations. Calmer in Hong Kong. Minutes and speeches of the FOMC members are in focus this week. The zloty remains stable both to the euro and the franc in anticipation of MPC meeting decisions.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted:

  • No major economic data which may significantly affect the analyzed pairs.

The US. Germany. Hong Kong. The Fed

The US Labor Department published solid data on Friday. Both companies' and household surveys showed significant improvement concerning the job's market. The economy added 248k payrolls in September. It was around 30k more than expected. Additionally, the data from two previous months was revised upward by 69k. As a result, after 8.30 am EST it turned out that the US employment rose by 100k taking into the account projections and previous data.

Similarly, upbeat readingw were reported regarding the unemployment rate. The official job's data benchmark dropped to 5.9% which is the lowest level since July of 2008. Moreover, the US achieved the unemployment level projected for the year's end in September, what should increase the odds for earlier than expected rate hike. At the end it is also worth noting that the average hours workweek rose to the highest level since 2008.

Not all the data was so optimistic. The labor participation rate shrank to the lowest level in more than 30 years. It helped a bit to artificially pump the employment data but still the job growth was stronger than anticipated. There was also some disappointment regarding the average hourly earnings. The wages were flat m/m while economists expected a gain of 0.2% m/m.

The positive indicators from the Labor Department clearly dominated some setbacks in the report. In the recent 12 months the unemployment dropped from 7.2% to 5.9%. Furthermore, the payrolls gain in the whole 2014 may have exceeded markedly 2.5 million which would be the best result since 1999.

Bullish signs also came from one of the most important leading indicators. The services ISM was in line with expectations and topped 58.6 points while the employment subindex rose to 58.5. Overall, the US data were clearly solid and confirmed that world's largest economy leads the growth around developed nations.

Investors clearly interpreted it as a sing of earlier monetary tightening what turned into a high demand for dollar and panic selling of other currencies. The EUR/USD slided to 1.2500, the cable dropped below 1.60 while the “greenback” was worth 110 JPY again. The situation looked similar concerning the EM currencies where we observed a significant inflow to the dollar (even Korean won which is regarded as a fundamentally sound asset dropped 0.7%).

In Europe we have completely different situation. German factory orders dropped at a fastest pace since 2009 (minus 5.7% m/m). Even though the readings are fairly volatile (previously it was +4.9%), the overall trend in second half of the year is disappointing. Additionally, as the statistic office “Destatis” reported, the export orders markedly dropped (minus 8.4%) while the domestic only decrease by to 2%. Regarding the fact that Germany is a large export hub it may push both the production and the GDP lower in the current quarter.

During the weekend the Hong Kong demonstrations eased significantly. The amount of students protesting on the streets dropped from tens of thousands to hundreds. Moreover, the officials started some negotiations with the protesters. The topic will most probably not be discussed by financial media anymore.

From the geopolitical news it is worth to Ukrainian issue. According to the TASS news agency on October 7th the trilateral gas talks should be resumed. There is a significant probability that the deal will be announced when Kiev government pays its 3 billion USD debt. There are also talks concerning the “buffer zone” between separatists' territory and the rest of the country. If both plans are agreed, we should expect that the Ukrainian issue will have diminishing impact on global investors behavior (until the end of the year we should also expect some sanctions to be halted).

Today's session should create some rebound. It doesn't change the positive approach to the dollar. In the following days the main event should be Wednesday's minutes and FOMC member speeches (on Friday William Dudley and on Saturday the vice chair Stanley Fischer).

No major changes

The strong capital inflow to the dollar disturbed the Polish currency market. During the Friday's afternoon we even reached 3.35 on the USD. There was also a bit stronger than usually volatility on the EUR/PLN which tested 4.19 level.

Following days should be much calmer. Today the EUR/PLN returned to well known territory around 4.17-4.18 and the CHF/PLN is quoted close to 3.46. We may expect more emotions during the MPC conference on Wednesday. It is certain that Marek Belka and his colleagues is going to lower the benchmark and the monetary easing will be probably 25 bps (there will be majority to cut the rates by more). As a result the statement and the Q&A part will be pretty important. During the conference we will be able to evaluate whether the governor is capable to lower the rates more than 25 bps in November

Summarizing, we should observe a correction on USD/PLN but it will not probably exceed the 3.32 level. The CHF/PLN and EUR/PLN should be pretty stable. No major volatility is also expected on GBP/PLN

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.2650-1.2750 1.2550-1.2650 1.2750-1.2850
Range EUR/PLN 4.1600-4.2000 4.1600-4.2000 4.1600-4.2000
Range USD/PLN 3.2800-3.3200 3.3000-3.3400 3.2600-3.3000
Range CHF/PLN 3.4300-3.4700 3.4300-3.4700 3.4300-3.4700

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.6050-1.6150 1.5950-1.6050 1.6150-1.6250
Range GBP/PLN 5.2900-5.3100 5.2700-5.3100 5.3100-5.3500

6 Oct 2014 13:15|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:

3 Oct 2014 18:31

Afternoon analysis 03.10.2014

3 Oct 2014 12:25

Daily analysis 03.10.2014

2 Oct 2014 17:22

Afternoon analysis 02.10.2014

2 Oct 2014 12:08

Daily analysis 02.10.2014

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