Daily analysis 24.03.2017

The discussion regarding the new American healthcare regulations is expanding. Significantly better than expected PMI data from the eurozone may overestimate the scale of this region’s economic improvement. The zloty remains strong against the main currencies, as well as against the forint.

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

• 13.30: Orders for durable goods in the USA (estimates for February: positive 1.3% MoM; excluding transport: positive 0.6%).
• 14.45: PMI indexes from the USA (estimates: 54.8 points and 54.0 points for industry and services, respectively).
• Voting over the new American healthcare regulations.

New date

Yesterday, the American House of Representatives did not vote on the new healthcare regulations. Moreover, it is being speculated that Congress has postponed the vote until next week. Eventually, it has been settled that the vote will take place this afternoon (EST).

However, the impact of this event may be decreasing. Recent signals from the White House have suggested that economic matters don’t necessary have to be determined by healthcare regulations. According to Bloomberg, Chris Collins, President Donald Trump’s ally in the House of Representatives, suggested that if the new healthcare regulations are not accepted, Republicans will simply carry on with the tax system reform.

Nevertheless, this statement may be an element of a political game. The majority of the Republican Party has been trying to convince its inner-opposition that if they don’t vote for new healthcare project, this will keep Obamacare regulations valid. That will coincidentally cause the GOP to get take the blame.

In conclusion, the reduced pressure on new healthcare regulations may cause a limited reaction from the market. If regulations are accepted, the dollar’s strengthening should be limited. This is because investors will continue to speculate about the Senate’s decision. Moreover, the market may start estimating whether future economic changes will face the same problems. Nevertheless, a denial of changes in healthcare does not have to shatter the revisions being made in the tax system changes. This reduces the negative tone of this event.

Very positive PMI

This morning, we received initial data regarding PMI from the largest EU economies, as well as from the entire eurozone, for March. This data appeared to be very positive. According to IHS, the eurozone’s collective economic activity index (both services and industry) reached its seventy-one-month maximum at the level of 56.7 points (estimates: 55.8 points).

The new orders index was at its most positive level since April 2011 and the labor market data was the best it’s been since July 2007. An increase in demand caused producer inflation growth to move to its highest level since May 2011. What is interesting is that the German employment index increased the most in twenty years.

Another interesting thing is that the French PMI was higher than the German PMI (57.6 points vs 57.0 points). According to Chris Williamson, IHS Markit senior economist, the PMI suggests a 0.6% QoQ GDP growth for this quarter.

Positive readings from the eurozone should be positive for the euro. This is especially considering that a discussion about abandoning a mild monetary policy has begun. However, real data doesn’t confirm a positive impact of these readings for the time being. According to Eurostat, industrial production for January increased 0.6% YOY and retail sales increased 1.2%. Both of these results were below the market consensus. However, if there is an actual improvement in data, the euro should benefit from this.

Zloty remains strong

The zloty remains relatively strong. Both the franc and the dollar remain below 4.00 and the EUR/PLN is in the vicinity of 4.27. It is also worth noting that the zloty is at its highest level against the forint since August 2016.

The positive condition of the zloty is a result of positive sentiment toward emerging market currencies, as well as of its internal strength. The latter element most likely results from a less dovish message from the MPC minutes, as well as from anxieties that the Hungarian central bank may sustain mild monetary conditions next week, despite inflation near the 3.0% level.