Daily analysis 08.03.2017

The data regarding the German industrial production was not a confirmation of yesterday’s reading regarding orders. Readings from China were disturbed by both the holiday and a low base of the raw material prices. The profitability of the American treasury bonds are at their highest levels before the ADP readings. The zloty is stable before the MPC meeting.

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

• 14.15: ADP data regarding employment in the American private sector (estimates: positive 187k).
• 16.00: The Monetary Policy Council’s press conference and macroeconomic forecasts based on the NBP inflation projection for March.

Inconsistent data series

Yesterday, we took note that the largest in eight-years decline in the German industrial orders index doesn’t have to be negative for today’s data regarding the industrial production. We also emphasized that the data from the past few months (excluding readings for January) has indicated a moderate improvement in the business cycle. Today’s report from Destatis has confirmed these conclusions.

The German industrial production for January increased 2.8% MoM (orders decreased by 7.4% MoM) and remained unchanged in the Year over Year interpretation. Moving average from the past twelve months is at the level of 0.8% YoY (including changing prices). This situation has basically been the same for two years, despite significant changes in particular months.

The Chinese data might have appeared surprising as well. The import index for February (expressed in the yuan) increased 44.7% YoY and the export index increased 4.2% YoY. Moreover, a deficit in the foreign trade appeared for the first time in two years. However, these readings were a result of the Chinese New Year’s Day celebrations. In 2016, the entire holiday week occurred in February, whereas this year its larger portion occurred in January. The same disturbances were observed in the first quarter of 2014, as well as of 2015.

Additionally, it’s also worth noting that the raw material prices were definitely lower last year (the oil price expressed in the yuan increased approximately 70%.) This increased the disturbance caused by the holiday. Each year, the Chinese data should be analyzed by the prism of the first quarter, instead of particular months. Therefore, there are no reasons to come to wider conclusions because of today’s readings.

Signals from debt market

Currently, the signals from the debt market are far more important than the data from China, as well as from Germany. The profitability of the American two-year treasury bonds are above the level of 1.34%. The profitability of the five-year bonds are near 2.07%. Moreover, the profitability of the ten-year bonds are near 2.55%. The market of the terminal interest rates contracts estimates that the chances for rate hikes in both March and June are at the level of 50%. Moreover, the chances for four rate hikes in 2017 are at the level of 20%. This may encourage some of the Fed members to modify their estimates regarding interest rates upward.

This information is positive for the dollar as well. However, moves on the American currency remain relatively limited. The EUR/USD tested the area if 1.0550 this morning, but the global investors seem to be quite skeptical towards the future rate hikes and are less eager to react to changes in the profitability of treasury bonds than they used to in the past few months.

Today’s ADP readings will be very significant. The result of approximately 200k workplaces in the private sector should sustain the dollar’s positive perspectives before the data from the Labor Department on Friday. A relatively positive reading has already been suggested by the lowest jobless claims index in more than forty years, as well as by a positive data regarding the ISM services sector employment component (55.2 points). Therefore, a positive condition of the USD remains the base case scenario.

Anticipation for the MPC decision

Due to the dollar’s global strengthening, the USD/PLN reached the area of 4.09. However, the zloty remains stable. The franc, the euro and the pound remain near their levels from yesterday. Moreover, the zloty remains stable against the forint.

However, more fluctuations may appear when the Monetary Policy Council will publish its announcement (16.00). In the case of the lack of any suggestions regarding potential rate hikes in the forthcoming months, the zloty may lose value. Some investors may interpret this message as a will of the monetary stimulation. However, if the Council suggests a possibility of a discussion regarding monetary tightening in the near future, the EUR/PLN should remain near its current level.