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Daily analysis 06.11.2017

6 Nov 2017 12:19|Marcin Lipka

The dollar is slightly stronger after Friday's ISM readings. Final PMI publication from the eurozone close to initial results, but service components have been relatively weak in Spain and Italy. The zloty under slight pressure. The EUR/PLN pair between 4.24-4.25.

The most important macro data (CET - Central European Time). Surveys of the macro data are based on the information from Bloomberg unless noted otherwise.

  • No macro data that can clearly influence the analysed currency pairs.

A stronger dollar but no breakthrough

Friday's data from the US labour market did not cause any major changes on the dollar. This was initially due to the fact that effect of hurricanes was still visible and it was difficult to assess whether the slowdown in wage growth was due to a return to employment of less-paid workers or other factors. Moreover, a small sample of the study could also exaggerate the actual scale of the changes.

However, the US dollar and US Treasury bond yields increased considerably after the ISM index publication from the service sector. American entrepreneur sentiment rose to more than 12-year highs and the index reached a level of 60.1 points. The business activity and new orders index clearly exceeded 60 pts and amounted to 62.2 and 62.8 points, respectively. The employment component also increased by 0.7 pts, reaching 57.5 pts. As a result, with highly disrupted data from the labour market, the ISM became a catalyst for changes on EUR/USD as well as for a decrease in the main currency pair from around 1.1650 to 1.1600.

Today's quotations are also close to Friday's closing. The IHS Markit released the final PMI data for eurozone economies in the morning. It did not differ significantly from the initial estimates and still suggests a GDP growth rate of 0.6-0.7% in Q4. It is worth noting, however, that the peripheral countries are in a rather weak condition in October's study.

Italian PMI for the services sector fell to 52.1 points. This was the third consecutive decrease and the lowest reading in 9 months. Paul Smith, the director of IHS Markit, pointed out that Italy is dealing with a two-speed economy. "Whilst manufacturing is benefiting from a strong upturn in external demand for capital goods, growth in the services economy – which is naturally pivoted to domestic demand developments – is lagging that of industry.”

Spain's PMI in the services sector also incurred a significant decline in October (54.6 vs 56.7 pts). In addition, entrepreneur sentiment has lowered to 13-month-long lows due to concerns about the situation in Catalonia. On the one hand, the weaker situation within the peripheral countries may be worrying, but on the other hand, the overall situation in the eurozone is good enough and the worse economic situation in Spain or Italy should not harm the overall performance of the single currency area in the current quarter.

There is not much important macroeconomic data in the coming days. William Dudley's speech on "Lessons from the financial crisis" is scheduled for the evening (6:10 pm). Today's Wall Street Journal writes that Dudley may retire earlier than expected (at the beginning of 2018 instead of halfway through). It is possible that this decision could be announced today, according to the information provided by WSJ. Although Dudley is a key person in the Federal Reserve, his views did not differ much from the current consensus. Therefore, the direct market's reaction after hypothetical confirmation of these speculations does not have to be strong.

The zloty under slight pressure

The dollar's appreciation on Friday afternoon caused downward pressure on the zloty. The EUR/PLN rose from 4.23-4.24 to 4.24-4.25. The zloty was also negatively influenced by the sentiment towards the entire emerging market. Latin American currencies lost 1-2% in relation to the dollar. On the one hand, this was due to the higher ISM readings in the US and on the other because of speculation about Venezuela's potential for debt restructuring. The lira recorded a strong 2+% depreciation. The Turkish currency was not only under pressure from the more expensive dollar or events in Latin America but also from much higher the expected inflation.

The coming hours on the zloty should not be overly tense. The calendar has no key macroeconomic data and other emerging markets are calmer than they were on Friday. Therefore, the euro or the dollar's quotations in relation to the zloty won’t likely change much either after the opening of trade in the US.


6 Nov 2017 12:19|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:

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Afternoon analysis 03.11.2017

3 Nov 2017 12:08

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2 Nov 2017 14:52

Afternoon analysis 02.11.2017

2 Nov 2017 12:18

Daily analysis 02.11.2017

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