Daily analysis 23.11.2015

The good PMI from the eurozone are satisfying, but there is a small chance that it will change the European Central Bank approach regarding further monetary easing. Comments from the Fed remain hawkish. The zloty remains stable to the euro. The dollar is still in the area of 4.00.

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

• 15.45: Initial reading of the PMI from the American industry (estimations: 54 points).
• 16.00: Sale of houses on the secondary market in the USA (estimations: 5.4 million).

Does the good PMI data change anything?

In the morning, Markit published the initial readings of the PMI index, which appeared to be better than expected. An increase in the index, which combines industry and services to 54.4 points is especially interesting. This is the highest value for 4 and a half years in the eurozone.

Particular subindexes also appeared as positive. Employment and new orders increased at the fastest pace for 4 years. Anxieties for the condition of the German economy related to the deterioration in the situation on the emerging markets have not been confirmed so far. Markit takes note of the fact that an increase in new orders in the German industry, was partly caused by “a high demand from export markets”.

The publication from France was also relatively positive, despite the fact that the surveys were gathered after the events in Paris. An index which describes the condition of future industry increased to the level of 50.8. This is the highest level for 18 months. According to Chris Williamson, the Markit chief economist, in general the PMI indicate that “the data suggests an increase in GDP on the level of 0.4% in the fourth quarter, with a chance for +0.5%”.

However, there is one basic question: will today's positive data change anything in the ECB attitude towards December's decision regarding an increase in monetary stimulation? In our opinion there is a small chance that Mario Draghi and his colleagues would consider the PMI indexes as a sufficient enough reason for ceasing an increase in the QE, extension of purchase of assets, and a decrease in the deposit rate.

For what reason? First of all, in the past there were a lot of good readings of accelerating indexes, which later did not translate to the condition of the real economy. Second of all, the ECB representatives recently made a remark that they are waiting for good, rigid data. Survey studies cannot be considered as such.

Williamson also notes that an improvement in the PMI “without a doubt will not change much in the approach of the monetary representatives to take more definite actions on December's meeting, in order to ensure a stronger and more durable economic growth”. To summarize, it is also worth emphasizing that the market's reaction regarding the value of EUR/USD was very muffled.

Few words about the foreign market

Apart from the good PMI readings, we also received some interesting comments from the Federal Reserve representatives. On the weekend, John Williams spoke about the FOMC monetary policy. The chairman of the San Francisco Fed suggested that there are many reasons to begin monetary tightening in December. On the other hand, William Dudley took note of the negative impact of the strong dollar on export and investment expenses, but also claimed that the economy is in “a quite good condition”, and December's decision will be dependant on the coming data.

As a result, the aggressive monetary easing in the eurozone and tightening of the monetary policy in the USA remains the base case scenario. These fundamental factors will probably keep the EUR/USD under pressure. Considering the fact that the American debt market remains sceptical towards the matter of an increase in interest rates, it is expected that the future Fed activities are still not fully calculated in the rate of the American dollar.

Zloty stable to euro

The EUR/PLN remains relatively stable and remains slightly below the level of 4.25. The zloty should be supported by the good PMI readings from the eurozone. They give hope that the Polish companies will take advantage of a good business cycle in western Europe. Additionally, we received an interview with Vice-Prime Minister Morawiecki for Rzeczpospolita, quoted by Bloomberg. He said that he expects a decrease in the deficit of public finances below 2.8% in the long-term.

The following hours should be relatively calm for the national currency. Only the American dollar can once again test 4.00, in the case of good readings from the United States, though a more visible approach above this level is unlikely. This is due to the fact that the American PMI and housing sales on the secondary market seldom cause sudden moves.

Anticipated levels of PLN according to the EUR/USD rate:

Anticipated GBP/PLN levels according to the GBP/USD rate: