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Daily analysis 31.01.2018

31 Jan 2018 12:42|Marcin Lipka

Sentiments on the market calmed down. Eurostat data on inflation and unemployment was in line with expectations. Investors await for ADP readings and signals from January's Fed meeting. The zloty became slightly stronger due to reduced risk aversion. The EUR/PLN pair close to 4.15.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:15 p.m.: January's employment change in the US economy (estimate: 185k),
  • 8:00 p.m.: Federal Reserve meeting (estimate: no change in interest rate - between 1.25% and 1.50%).

Market can breathe

After two US sessions full of dips, the situation in the broad market has stabilised slightly. Compared to yesterday's closures, the dollar is weaker in relation to most emerging market currencies and S&P future contracts are slightly appreciating. From the point of view of the market, President Trump's speech had limited impact on the economic situation. The issue of increasing infrastructure spendings was predominant among economic themes, but it may be difficult to meet these promises especially given the tight budget after tax cuts.

The issue of drugs and the need to lower their prices took some part in President Trump’s speech. If these statements are implemented or other issues regarding rising medical service costs arise, there could be pressure on lower inflation as well as core inflation). However, it seems that this a long-term prospect for the market to analyse it more broadly. Therefore, the message is rather perceived as neutral from the dollar's point of view.

Eurostat data also did not introduce significant changes. The overall inflation rate in January was slightly above estimate (1.3% vs. 1.2% year-on-year), but prices in base terms (excluding food, fuels, alcohol and cigarette prices) increased in line with expectations - by 1.0% year-on-year. Therefore, the balance sheet of dovish and hawkish views at the ECB shouldn’t be a favour for either side.

The unemployment data from the eurozone was in line with expectations. Eurostat reported that it amounted to 8.7% in the eurozone (same as November). The situation on the labour market has been improving in many countries, although the process seems to occur slowly in France and Italy. Therefore, it is difficult to expect wage pressure from these countries at the moment, which would translate into faster inflationary growth in the eurozone. As a result, the data should be considered to be neutral.

Fed in the limelight

In the afternoon, US data on new payrolls will be received. Recently, the market has reacted significantly to ADP reports, as the publications often differ from the Department of Labor's official readings (at least in relation to estimates before the review). In addition, the market is more focused on wage data (this is not included in ADP), rather than data on the amount of payrolls. Therefore, if there is no spectacular difference in actual readings compared to the forecast (185k), this publication is likely to be ignored.

As a result, the statement from January's Fed meeting (no conference, no macroeconomic forecasts) may be the most important market impulse. It may suggest that the economy is in good shape as consumption and investment in the last GDP reading have been very strong in the US and the Fed may also refer to inflation, which did not fall in comparison to December (this fact was noted in the statement). In the end, the statement from the Federal Reserve may be relatively hawkish, which may somewhat help the dollar in the evening due to higher yields on Treasury bonds in the US.

Calmer zloty

Yesterday, higher nervousness was observed on the zloty's quotations. The EUR/PLN pair sometimes exceeded 4.1600. The situation is calmer today as the dollar is weaker and the Asian countries currencies are noticeably appreciating (the Chinese yuan has been the strongest to the USD for over two years). The EUR/PLN also moved around midday to the range of 4.14 - 4.15.

Today's event for the zloty is the Fed meeting. There is a chance that it may be relatively hawkish, which may help the dollar to some extent and cause a slight depreciation of the zloty. However, more spectacular movements are unlikely and both the dollar and the euro should not exceed the most recent highs.

31 Jan 2018 12:42|Marcin Lipka

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.

See also:

30 Jan 2018 15:52

Afternoon analysis 30.01.2018

30 Jan 2018 12:30

Daily analysis 30.01.2018

29 Jan 2018 15:40

Afternoon analysis 29.01.2018

29 Jan 2018 12:28

Daily analysis 29.01.2018

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