A general reading of PMI indexes is consistent with a moderate economic growth in the euro zone. The pound continues its appreciation, also against the zloty. The Polish currency is quoting slight changes against the euro, as well as the dollar.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
15.45: Initial PMI data from the American industry (estimations: 52.6 points).
16.00: Sale of new houses in the USA (estimations: 580k).
PMI indexes from the euro zone
This morning, the market received initial PMI data from France, Germany and the entire euro zone. In general, readings of accelerating indexes that were examined by IHS Markit, appeared to be consistent with previously established averages. Therefore, they don't indicate a significant breakthrough in the euro zone's future economic condition. Apart from a significant depreciation if the business expectations subindex, there is no visible negative impact of Brexit for the time being.
As usually, the first readings came from France. An improvement in services was a positive surprise. The sector's activity increased to its highest level in ten months and reached 52 points. On the other hand, industrial sector remained blow the level of 50 points (48.5 points) that separates progress from regress.
The most positive data is an increase in orders from services sector. On the other hand, orders in industry have been decreasing eighth month in a row. Another negative element is a decreasing employment in industry, as well as services. Business expectations do not look positive either. They went down to their eight-month minimum.
Currently, it's difficult to say whether an increase in new employments in services sector, will be able to convert to a higher employment, as well as an increase in business expectations. Therefore, we can assume that the headline reading is slightly overestimating the optimism.
The situation in Germany was opposite to the situation in France. Activity of services sector decreased and industry remained at a similar level as one month ago. However, both readings are within the range of 53 points. This indicates a relatively positive future economic condition.
It's also positive that new orders in Germany continue to grow, especially that demand for industrial products from abroad is the highest in more than two years. This may translate to a better condition of Polish companies in the second half of this year, as well.
The German labor market remains strong. “Pace in which workplaces are being created, clearly remains above the long-term trends, despite it was the weakest in three months,” states IHS Markit. The only disturbing element of the report was a decrease in business expectations of services sector, to its lowest level in almost two years.
In his summary of initial data for the entire euro zone, Markit chief economist, Chris Williamson, stated that the surveys indicate a 0.3% q/q increase in the third quarter. The German GDP may quote a 0.5% q/q growth.
Today's PMI data shouldn't change the ECB perspective as well. This is because it does not mean a significant deflection from the central bank's base case scenario. The EUR/USD increased slightly and exceeded 1.1350 after the French readings. However, it is possible that appreciation of the main currency was not only caused by growth of the euro, but by a depreciation of the USD/JPY as well. However, these moves were relatively small. Therefore, they are unlikely to change the perspective of a calm trade, until Janet Yellen's testimony on Friday.
Stronger pound
The British currency is doing increasingly better in the global market. The GBP/USD exceeded the 1.3200 area and was at its highest level since the 4th of August. This translates to a higher evaluation of the pound, also against the zloty. Today, the pound reached the level of 5.02 PLN. This is 0.12 PLN higher than approximately one week ago.
A higher evaluation of the pound is mainly a result of better than expected data from the past week (labor market, retail sales). Perhaps, some of financial investors are reducing short positions (set on the GBP decline) that are currently at their highest level in at least twenty years (according to the CFTC data).
The next week PMI data will be a serious test for the pound. If it shows a significant rebound from the last month minimum, some of investors may think that the Brexit impact is much milder than expected (at least for the time being). This would significantly reduce the risk of further decrease in interest rates by the Bank of England. Moreover, it could extend the correction on the pound as well. Additionally, if the PMI data is supported by relatively positive industrial or retail sales data, the pound would most likely return to the 5.15-5.20 range in September.
Stabilization on zloty
The zloty market has been relatively calm since morning. The dollar, as well as the euro, are moving in a relatively tight range of fluctuations, near 3.80 and 4.31, respectively. The market of treasury instruments is quite stable as well. Investors are clearly anticipating Janet Yellen's testimony in Jackson Hole on Friday.
There should not be any larger volatility in the coming hours as well. Today's data from the Unitd States should not impact the market's expectations regarding the American interest rates. Even if it significantly deflects the economists estimations, the global investors will not make any serious decisions before testimony of the FOMC chairwoman on Friday.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
A general reading of PMI indexes is consistent with a moderate economic growth in the euro zone. The pound continues its appreciation, also against the zloty. The Polish currency is quoting slight changes against the euro, as well as the dollar.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
PMI indexes from the euro zone
This morning, the market received initial PMI data from France, Germany and the entire euro zone. In general, readings of accelerating indexes that were examined by IHS Markit, appeared to be consistent with previously established averages. Therefore, they don't indicate a significant breakthrough in the euro zone's future economic condition. Apart from a significant depreciation if the business expectations subindex, there is no visible negative impact of Brexit for the time being.
As usually, the first readings came from France. An improvement in services was a positive surprise. The sector's activity increased to its highest level in ten months and reached 52 points. On the other hand, industrial sector remained blow the level of 50 points (48.5 points) that separates progress from regress.
The most positive data is an increase in orders from services sector. On the other hand, orders in industry have been decreasing eighth month in a row. Another negative element is a decreasing employment in industry, as well as services. Business expectations do not look positive either. They went down to their eight-month minimum.
Currently, it's difficult to say whether an increase in new employments in services sector, will be able to convert to a higher employment, as well as an increase in business expectations. Therefore, we can assume that the headline reading is slightly overestimating the optimism.
The situation in Germany was opposite to the situation in France. Activity of services sector decreased and industry remained at a similar level as one month ago. However, both readings are within the range of 53 points. This indicates a relatively positive future economic condition.
It's also positive that new orders in Germany continue to grow, especially that demand for industrial products from abroad is the highest in more than two years. This may translate to a better condition of Polish companies in the second half of this year, as well.
The German labor market remains strong. “Pace in which workplaces are being created, clearly remains above the long-term trends, despite it was the weakest in three months,” states IHS Markit. The only disturbing element of the report was a decrease in business expectations of services sector, to its lowest level in almost two years.
In his summary of initial data for the entire euro zone, Markit chief economist, Chris Williamson, stated that the surveys indicate a 0.3% q/q increase in the third quarter. The German GDP may quote a 0.5% q/q growth.
Today's PMI data shouldn't change the ECB perspective as well. This is because it does not mean a significant deflection from the central bank's base case scenario. The EUR/USD increased slightly and exceeded 1.1350 after the French readings. However, it is possible that appreciation of the main currency was not only caused by growth of the euro, but by a depreciation of the USD/JPY as well. However, these moves were relatively small. Therefore, they are unlikely to change the perspective of a calm trade, until Janet Yellen's testimony on Friday.
Stronger pound
The British currency is doing increasingly better in the global market. The GBP/USD exceeded the 1.3200 area and was at its highest level since the 4th of August. This translates to a higher evaluation of the pound, also against the zloty. Today, the pound reached the level of 5.02 PLN. This is 0.12 PLN higher than approximately one week ago.
A higher evaluation of the pound is mainly a result of better than expected data from the past week (labor market, retail sales). Perhaps, some of financial investors are reducing short positions (set on the GBP decline) that are currently at their highest level in at least twenty years (according to the CFTC data).
The next week PMI data will be a serious test for the pound. If it shows a significant rebound from the last month minimum, some of investors may think that the Brexit impact is much milder than expected (at least for the time being). This would significantly reduce the risk of further decrease in interest rates by the Bank of England. Moreover, it could extend the correction on the pound as well. Additionally, if the PMI data is supported by relatively positive industrial or retail sales data, the pound would most likely return to the 5.15-5.20 range in September.
Stabilization on zloty
The zloty market has been relatively calm since morning. The dollar, as well as the euro, are moving in a relatively tight range of fluctuations, near 3.80 and 4.31, respectively. The market of treasury instruments is quite stable as well. Investors are clearly anticipating Janet Yellen's testimony in Jackson Hole on Friday.
There should not be any larger volatility in the coming hours as well. Today's data from the Unitd States should not impact the market's expectations regarding the American interest rates. Even if it significantly deflects the economists estimations, the global investors will not make any serious decisions before testimony of the FOMC chairwoman on Friday.
See also:
Afternoon analysis 22.08.2016
Daily analysis 22.08.2016
Afternoon analysis 19.08.2016
Daily analysis 19.08.2016
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