Daily analysis 07.04.2017

The tone of the data from both Germany and the United Kingdom isn’t as obvious as its comparison to the consensus. High expectations towards the data from the American labor market. The condition of the zloty in the global market is stable.

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

• 14.30: The data from the American Labor Department. New workplaces in the non-agricultural sector (estimates: 180k). The unemployment rate (estimates: no changes, 4.7%). The average hourly wage (estimates: positive 2.7% YOY and positive 0.2% MoM).

Unclear data

Today’s data regarding German industrial production is theoretically consistent with very positive accelerating indexes from Germany. According to Destatis, industrial production increased 2.5% YOY in February while the consensus was at the level of 0.5% YOY. Unfortunately, there are at least two reasons to be less optimistic toward this data.

Primarily, the previous month’s data has been revised from 0.0% YOY to negative 0.5% YOY. This means that the base effect was more favorable in February. Secondly, a significant portion of that growth was generated by the building sector. According to Destatis, industrial processing only increased by 1.5% YOY. However, the building sector alone increased by approximately 10%, which was most likely caused by favorable weather.

British data regarding industrial production was significantly below the consensus (2.8% YOY vs 3.7% YOY). However, this index’s components were definitely better than their German counterparts. Industrial processing increased 3.3% YOY, which is very solid. Moreover, a significant increase was quoted in production of computers and electronics (8.3% YOY), machines and equipment (9.6% YOY), and transport (10.2% YOY).

We can’t say many positive things about the British foreign trade balance, however. We recently wrote that fourth quarter data from 2016 gives hope for an improvement in both the trade balance and current account. However, according to the readings for February, the foreign trade deficit increased up to 12.4 billion pounds (estimate: 10.9 billion). Moreover, January’s data has been revised from negative 10.8 billion to negative 12 billion pounds. As a result, the beginning of 2017 was worse for the trade balance than it was at the beginning of 2016. This is a negative signal for the pound.

American data

German or British publications are of a relatively limited relevance for the wide market. However, today’s data from the American Labor Department will clearly be more significant. This is due to the readings helping the evaluation of the further monetary tightening path.

It’s also worth keeping in mind that due to the ADP data, expectations toward today’s payrolls are quite high. A result consistent with the current consensus (180k) would have been considered relatively weak. A neutral scenario includes a result within the range of 220k-230k.

It’s possible that data regarding salaries will be more crucial. The market consensus is within the range of 2.7% YOY – 2.8% YOY. A higher value would increase the chances for the dollar’s strengthening, especially taking into consideration that the general sentiment has been favorable for the American currency over the past few days.

Zloty remains strong

The zloty has been supported by positive sentiment toward emerging market currencies. Today the zloty was testing its one-year maximum against the forint. However, it’s worth keeping in mind that the zloty’s current strength mainly comes from the capital, which is very vulnerable to global changes. This increases the likelihood of a strong work-off, even in the case of a slight increase in the risk aversion.

Relatively high payrolls from the USA seem like the optimal scenario for the zloty (improvement of sentiment). However, an increase in salaries should be minor (lower pressure on rate hikes). A reversed scenario may harm the zloty.