Daily analysis 12.04.2017

The sentiment towards the emerging market currencies is deteriorating slowly. The data from the British labor market do not show the negative Brexit results for the time being. The zloty is losing value, but the scale of its wear-off is relatively limited. The EUR/PLN is near 4.25 and the USD/PLN is at the level of approximately 4.00.

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

• 14.00: Baseline inflation from Poland (estimates: positive 0.5% YOY and positive 0.2% MoM).

Stronger yen is increasing risk aversion

The yen’s strengthening on Tuesday afternoon appeared to be crucial for the market. The USD/JPY was pushed below 110, for the first time since mid-November. This usually is a suggestion of closing of the carry trade strategy, which is finances in the Japanese currency, hence worse global sentiment.

It’s difficult to say whether this was caused by an increase in geopolitical tension (the matters of North Korea, Syria and elections in France), or were there too little positive signals from the market. The latter would suggest that the market’s slide was caused by technical (necessity of closing the positions), rather than fundamental reasons.

It’s also worth taking that the dollar’s wear-off against the yen, resulted in growth of the GBP/USD. However, the EUR/USD remained unchanged. On one hand, this may confirm that the anxieties over the French elections are increasing. On the other hand, this may be a result of the previous dovish announcements from the ECB.

Situation of the emerging markets has been deteriorating slowly, but also consequently. Since the beginning of this month, none of the twenty-four EM currencies have gained against the yen. Seven of EM currencies have gained against the dollar and eleven of them have gained against the relatively weak euro. For the time being, there is no panic sale of the EM currencies. The direction has been pretty much defined, but it’s more likely a result of the lack of new capital, rather than of a strong capital outflow. This should limit the zloty’s potential overvalue as well.

British labor market

Condition of the British labor market remains positive. The unemployment rate is at the level of 4.7%. Moreover, the employment rate against the working age population (16-64 years old) reached its highest level since 1971 (74.6%).

An increase in the jobless claims index could be interpreted as negative, but this result may be related to the short-term statistical disturbances (a strong decrease in the previous months). In general, the British jobless claims are near their forty-year minimum.

The matter of salaries also can’t be evaluated as negative. However, it’s worth noticing that this index has basically stopped increasing (salaries including inflation). Nevertheless, British salaries were expected to be at the level of positive 2.2% (including bonus) and the increased 2.3% compared to the same period last year (between December and February).

Taking into consideration the Bretix-related anxieties, the above mentioned data is relatively positive. Another test for the British economy is the consumer behavior. This will determine the pound’s behavior in the forthcoming months. If the retail sales deteriorates, the Bank of England will most likely want to sustain the mild monetary policy (negative for the GBP). However, if the consumer sentiment remains positive, this may result in opinions about gradually initiating the monetary tightening (positive for the GBP).

Zloty determined by EM

Deteriorating global sentiment affects the zloty as well. Yesterday, the Polish currency wore-off after the yen’s clear strengthening. However, thanks to a strong scale of the zloty’s strengthening that had been lasting since this year’s beginning, the overvalue is not extremely strong.

Today, the National Bank of Poland (NBP) will publish the data regarding baseline inflation. However, this index will most likely be consistent with the market consensus (positive 0.5% YOY), which would result in a minor impact on the zloty. Therefore, the market should continue to follow the EM sentiment, which seems to be moderately negative.