Positive data from China. The US Secretary of the Treasury on the dollar and the tax reform. Has the uncertainty before the French presidential elections become larger? The zloty remains stable against the majority of currencies. The EUR/PLN is slightly below 4.25.
Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.
- 14.30: The building permits and initiated investments in the American real estates market for March (estimates: 1.25 million in annualized interpretation, in both cases).
- 15.15: The American industrial production (estimates: positive 0.4% MoM).
Chinese data and interview with Mnuchin
The data regarding the Chinese retail sales index shows a 10.9% YOY growth. Moreover, the Chinese industrial production increased 7.6% YOY. Both of these readings were approximately one percentage point higher than estimated. In addition, the GDP reading for the first quarter was at the level of 6.9% YOY, which was also better than expected.
A positive business cycle from China may reduce negative effects of the geopolitical tension in the region, as well as increase the wallet investors’ interest in the emerging markets. This would yet again support EM currencies with capital inflow.
We also received significant information from the Financial Times interview with Steve Mnuchin. When asked about the tax reform, the US Secretary of the Treasury replied that, “it is fair to say it is probably delayed a bit because of healthcare.” This statement can be interpreted as negative for the dollar.
Nevertheless, another statement from Mnuchin has supported the dollar. “As the world’s currency, the primary reserve currency, I think that over long periods of time the strength of the dollar is a good thing,” he said. Asked about Donald Trump’s statements regarding negative consequences of a strong USD in his interview with the Wall Street Journal last week, Mnuchin replied that they were referring to the short-term.
It seems that the market’s future reactions to the statements from the members of the American administration regarding the dollar will be fairly limited. However, the macroeconomic data, as well as plans regarding tax changes, should have a larger impact on investors. If the real data is not impressive and the tax reform becomes increasingly distant, the dollar’s strengthening in the short-term will be very difficult, regardless of comments from White House representatives.
Increasing risk from France?
The French election scenario has been relatively clear over the past few weeks. According to surveys, the second round would include Marine Le Pen and a centrist candidate (Francois Fillon or Emmanuel Macron). Moreover, Le Pen would lose to her opponent by approximately 15 percentage points. This is a relatively large difference, especially considering the shock after both the American elections and the Brexit referendum.
However, a third significant candidate has appeared – Jean-Luc Melenchon. Less than one month ago, he could count for approximately 11-12% of social support. Currently, this support has reached approximately 20%, which is basically the same amount of support for Fillon and approximately 2-3% less existing support for Le Pen, as well as for Macron.
According to the Wall Street Journal, Melenchon wishes to introduce an additional week of holiday, a thirty-two-hour work-week and a pension age decrease. He also wishes to limit the maximum personal income to 400,000 euros per year and has announced that France would leave NATO.
What’s interesting is that according to surveys, Melenchon has chances to defeat both Le Pen and Fillon in the second round. Therefore, his participation in the second round would clearly increase aversion risk, not only in the eurozone, but perhaps globally.
Zloty remains strong
The situation on the zloty has been very calm. The Polish currency has been within a very narrow volatility range. Before noon, we could observe a minor strengthening of the PLN against both the euro and the dollar. Moreover, the PLN/HUF has been near its one-year maximum (73.80).
The main element of risk for the zloty is a deterioration in the global sentiment towards the emerging market currencies. However, this risk has been limited by positive data from China. The above mentioned scenario regarding the French presidential elections can be hazardous for the zloty as well. Fortunately enough for the Polish currency, the market is not taking this into consideration for the time being. Therefore, the forthcoming hours should be calm for the PLN.