Daily analysis 28.09.2016

Mixed signals from the USA have a minor impact on the dollar. Fisher’s statements didn’t appear to be crucial. The zloty remains relatively stable before hypothetical changes within the Polish government. The euro is below the 4.30 level.

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

• 14.30: Orders for durable goods in the United States (estimations: negative 1.5% m/m; excluding transport: negative 0.5% m/m).

Data and Fisher

Yesterday’s macroeconomic data from the USA was quite interesting. The most interesting element was the significant increase in consumer sentiment, published by Conference Board. It reached its highest level since 2007, as well as exceeded economists’ expectations (99 points) by approximately 5 points.

The Conference Board report details were also positive. There was an increase in the current situation component, as well as the expectations component. Consumers also have a better opinion on the labor market condition and the estimated income. Therefore, we may come to the conclusion that the report is optimistic, especially taking into consideration the uncertainty regarding the elections.

However, there is one problem. The Conference Board data is not consistent with similar indexes for September, which are calculated by the University of Michigan. The latter are at the level of less than 90 points. This is a negative result, which puts them near their two-year minimum. However, there was a similar situation in the third quarter of 2015. At that time, the Conference Board data was indicating a significant rebound while, according to the University of Michigan data, the situation was remaining stable. As a result, both indexes returned to similar, albeit lower, values. Therefore, we should be quite skeptical towards the improvement for the time being, especially considering that the sentiment among companies has clearly cooled down.

This theory is confirmed by yesterday’s data from the American PMI services sector. Despite its minor growth (the index remained above the level of 50 points, which separates progress from regress,) its particular components are not optimistic. The only crucial subindexes that increased was production. Moreover, the pace of new orders decreased to its four-month minimum and the employment was at its lowest level since March 2013.

In his comment regarding the data, the IHS Markit chief economist, Chris Williamson, stated that the industrial and services data suggest that, “in the third quarter, the economy has been developing at a pace of 1% in annualized interpretation.” Williamson also claimed that, “a slowdown in the employment index is consistent with the number of 120k new workplaces included in the data from September.”

Therefore, the current data may be a pessimistic forecast for this year’s last months. This is even considering that an increase in the third quarter will most likely be significantly higher than the IHS Markit estimates (the GDPNow model estimates 2.9% for the third quarter.)

Yesterday, we also heard Stanley Fisher’s testimony at Howard University. The FOMC vice-chairman didn’t directly refer to the monetary policy. He did, however, mention a relatively low level of professional participation, but this analysis wasn’t precise enough to come to a conclusion that Fisher became more dovish.

During the Q & A series, the Fed representative focused on the level of increase in salaries. He suggested that, “the area of 3% y/y is consistent with a reasonable inflation level.” However, increase in salaries is currently at the level of approximately 2.5% y/y in his opinion. This also confirms that the Fed may focus more on this index, instead of the number of new workplaces. This would not only suggest to the FOMC the future growth of prices, but would also indicate the moment of full employment. It’s worth noticing that the recent Labor Department data indicated a decrease in pace of salaries growth from 2.6% to 2.4% y/y.

The data regarding orders for durable goods in the USA may cause volatility today. The previous readings were positive. Currently, economists estimate that there will be a 0.5% m/m decrease (excluding transport). However, the data would have to deflect the consensus significantly, in order to clearly impact the USD. This is taking into consideration its especially strong volatility in month on month relation.

Stabilization before government’s press conference

The zloty was relatively stable at noon. The EUR/PLN is near the 4.29 level. There’s a relatively small probability that the Polish currency would clearly deflect from this level today, even when taking into consideration a tweet from the Polish Press Agency. It cited the information from the Polish government’s spokesperson that, “the prime minister will inform about personal and system changes after the Council of Ministers meeting on Wednesday.”

However, we think that even if there are any personnel changes within the Ministry of Finance, this would not change the assumptions of fiscal policy. The market is most likely aware of this as well. Therefore the risk bonus (seen on the PLN/HUF pair) has been clearly limited over the past few days. We also continue to expect a stabilization, or even a slight strengthening, of the zloty against the euro during the forthcoming weeks.