Daily analysis 23.09.2016

Large changes in the PMI indexes make it more difficult for the EUR/USD to grow. The market will focus on readings from the USA, as well as statements from the FOMC members today. The zloty is becoming weaker due to information from Poland, as well as from abroad. However, the EUR/PLN should not go clearly above 4.30 for the time being.

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

• 15.45: PMI reading from the American industry (estimations: 52 points).
• 18.00: Discussion panel with three representatives of the Federal Representatives.
• 18.30: Robert Kaplan’s testimony.

Surprising changes in PMI indexes

We received the PMI indexes from the euro zone this morning. They have been showing a moderate, but stable economic growth of the euro zone countries over the past few months. Therefore, their significance for the market was limited. Moreover, Germany’s results were basically always better than France’s results.

However, the situation changed significantly today. The French services index increased to its highest level in fifteen months and reached 54.1 points. Industrial index improved as well. Thanks to this, combined value of both indexes reached its highest level in more than one year.

A different situation concerned Germany. Index of services sector went down to the level of 50.6 points, which was its weakest result in thirty-nine months. According to the IHS Markit studies, industrial index improved and went to the level of 54.3 points. Taking into consideration specific nature of the PMI indexes, as well as little intuitive changes of their trends, it’s very unlikely that they’re overestimating the scale of changes. Moreover, the actual differences may be significantly larger.

Surveys only defined the direction of changes and not their scale. Therefore, even slight fluctuations may cause significant changes of indexes. Moreover, it seems very unlikely that France’s economic condition would suddenly improve significantly, as well as that the Germany’s would suddenly deteriorate clearly.

The most upsetting fragment of the entire report is the data that has not been fully published. The initial readings don’t contain any specific data regarding six other euro zone countries. However, the group index shows a slight deterioration of their situation. This may be one of the basic dangers in the forthcoming months.

However, these changes are not dramatic for the time being. They seem to constantly show a moderate economic growth, which is estimated at the level of 0.3% for the third quarter by the IHS Markit.

PMI from USA and FOMC members

Taking into consideration the Federal Reserve’s clear suggestion regarding a will for rate hikes until the end of the year, investors will focus on macro data. If it’s weaker than expected, the market will begin to doubt the possibility of monetary tightening. This may quickly translate to a wear-off of the dollar. Therefore, the data that was previously ignored by the market, may now cause its nervous reaction.

This concerns the industrial PMI index prepared by IHS Markit. The American investors focus mor on the ISM indexes. However, due to the above situation, we may expect the dollar to lose value if the PMI goes below the 50 points level today (estimations: 52 points).

Primarily, this would confirm negative tendencies in industry that were suggested in the ISM reading from August (49.4 points). Secondly, this would increase the risk that ISM remains below the level of 50 points during the reading for September (scheduled for October 3rd).

Testimonies from the FOMC members may theoretically cause more volatility. A discussion panel with Harker, Mester and Lockhart is scheduled for today at 18.00 (6.00 PM). These representatives are more hawkish than the FOMC consensus. However, the topic of the conference is the Fed’s role in local communities.

Moreover, the market is aware of differences within the FOMC, as well as a more hawkish attitude from the Fed’s regional chairs. Therefore, the mentioned conference may appear neutral for the dollar. Robert Kaplan’s testimony may also have a minor impact on the USD, especially that it will concern the power industry and the economy of Texas.

Zloty is slightly weaker

The Polish currency is slightly weaker than yesterday. This may partially be a result of a slightly worse sentiment in Europe. However, taking into consideration that the PLN is also losing against the HUF, we need to assume that the zloty’s problems are a result of the local situation.

This morning, Fakt, which was quoted by Bloomberg agency, wrote that the minister of finance will possibly be dismissed within the forthcoming weeks. Speculations regarding this matter have been increased by the interview with Prime Minister Beata Szydło in Sygnały Dnia on the First Program of the Polish Radio. She mentioned there about possible changes in the government.

Today’s information may cause keeping the recent growths to be difficult for the zloty. On the other hand, taking into consideration a relatively positive sentiment after the recent FOMC meeting, we don’t expect the EUR/PLN to go clearly above 4.30. Only a significant deterioration of the global sentiments would cause the Polish currency to lose more value. This is not the base case scenario for the time being.