Daily analysis 10.03.2017

The euro has been sustaining its growths caused by the ECB meeting yesterday. Increasing expectations regarding today’s data from the American labor market. New speculations regarding the Scottish independence referendum and moderate foreign trade data from the United Kingdom. The American data can be a test for the zloty.

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

• 14.30: Workplaces in the American non-agricultural sector (estimates: positive 200k).
• 14.30: The American Labor Department data regarding the unemployment rate (estimates: 4.7%).
• 14.30: Hourly wage in the USA (estimates: positive 2.8% YoY; positive 0.3% MoM).

ECB and American labor market

We can’t define Mario Draghi’s press conference as hawkish. Any changes in the QE operation by the end of 2017, still remain unlikely. Moreover, rate hikes before the third or the fourth quarter of 2018 should not be considered as the base case scenario.

The ECB announcement didn’t cause disturbances in the market. However, during his press conference Mario Draghi suggested that the bank is not as dovish as investors think. This is because an excerpt about the use of any available tools has been deleted from the announcement. This has been interpreted as the first step towards abandoning the extremely mild monetary policy.

However, these modifications have been relatively symbolic, taking into consideration inflation revision (from 1.3% to 1.7%) or an improvement in global sentiment. Nevertheless, the EUR/USD has reached the area of 1.06.

The chances for more rate hikes in 2017 have been increasing in the United States. The profitability of the American two-year bonds and five-year bonds are at the level of 1.38% and 2.13%, respectively. These are their new records. Moreover, more than 50% of investors estimate two rate hikes until June and 75% estimate three rate hikes by the end of this year.

The dollar has been benefiting from these trends and grew stronger against the yen, the franc or the Australian dollar. However, the American currency’s strength is not as visible in the EUR/USD, due to the stronger euro. Moreover, expectations regarding today’s data from the labor market are higher than the market consensus indicates (payrolls: positive 200k).

Wednesday’s ADP reading (approximately 300k new workplaces) suggested that today’s data should be within the range of 240k-250k, in order to fulfill the market expectations. Hourly wage data will be crucial because they show a potential increase in wage pressure.

The market consensus regarding the hourly wage data for February is at the level of positive 2.8% YOY. Taking into consideration the readings from the past few months, this is a large increase. However, if this result is by 0.1 percentage points higher, this may be positive for the USD. This is because positive 2.9% YOY would be this index’s best result since mid-2009.

No positive news from UK

In her interview yesterday with the BBC, Nicola Sturgeon (chair of the Scottish National Party) said that it would be reasonable to conduct the independence referendum in the fall of 2018. However, today’s The Financial Times has cited one of the ministers who are familiar with the discussion regarding the referendum and he said that this decision has already been made and the only matter now is the date.

Today’s readings regarding British foreign trade were not optimistic as well. Despite the pound’s strong wear-off, the trade balance deficit for January was at the level of 10.8 billion pounds. This result is higher than the average from the past three years. If investors relate this fact to the Brexit topic, as well as to speculations regarding the Scottish referendum, this may cause difficulties in the pound’s rebound.

Zloty’s wear-off risk is increasing

The zloty is relatively stable. However, the EUR/PLN increased to the range of 4.32-4.33. This was mainly caused by the hawkish interpretation of Mario Draghi’s press conference.

However, it’s worth noting that the zloty may be under pressure within the forthcoming months. The risk of the long-term interest rates below zero, as well as the scenario of higher interest rates in the USA, may hamper the zloty’s appreciation in the case of positive sentiment towards the emerging market currencies and facilitate its depreciation, if the sentiment deteriorates. Today’s data from the USA can be a test for the zloty. If the dollar’s global strengthening caused both the USD/PLN and the EUR/PLN to increase, this would mean that the above mentioned risk is taken into consideration by the wide market.