Foreign trade as a big mystery (Daily analysis 10.09.2018)

The US labour market data supports the hawkish statement after the September FOMC meeting. What will happen next with foreign trade? The zloty, along with many emerging market currencies, has its moment to relax. The EUR/PLN in the 4.31-4.32 range.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Limited support for dollar

Friday's data from the US labour market supported the dollar. Wage increased and reached the 2.9% year-on-year level in August and was the highest in less than a decade. The rising remuneration and relatively low productivity should have a translation into higher prices, as well as a more restrictive attitude of monetary authorities.

The rest of the report (both in terms of household and entrepreneurs' survey) showed that the new payrolls increase is relatively solid (almost 200k on average every month over the last year). However, there are no structural changes that could improve economic activity in the USA. The participation rate (from household surveys) is 0.3 percentage points below the level recorded in August 2017 (62.7% vs. 63%). This is to a large extent a result of the ageing of the population, but it is expected that due to a good economic situation the participation rate will slowly increase or at least remain at a relatively stable level.

On Friday, the yields of US Treasury bonds increased (2-year bonds exceeded 2.7% for the first time in a decade). However, this does not necessarily have to be positive information for the dollar, as the difference between the yields of 10-year and 2-year Treasury instruments is dangerously approaching zero. Some of these more dovish FOMC members are sensitive to the possibility of reversing the yield curve of treasury bonds (the yields of yearly or 2-year treasury bonds are higher than 10 years), because in the past this foreshadowed a recession. Therefore, the dollar would be supported by strong increases in 10-year government bonds rather than those at the short end of the curve (annual or 2-year bonds, which are heavily dependent on current rates rather than on the long-term trend in inflation).

Trade mystery

On Thursday, the deadline for consultations on the change of US customs policy expired. On Friday, however, there were no official releases from the USTR (Office of the US Trade Representative) in the context of the additional customs duties on China imports that have been discussed for the month.

On Friday evening, however, Donald Trump said that he was ready to introduce duties on an additional 267 billion USD of Chinese annual imports (in addition to the 200 billion discussed over the last month and 50 billion already in force). In the context of 200 billion, the US President said that "they will apply very quickly, depending on what happens".

Bloomberg also reported that Lindsay Walters, Deputy Secretary of the White House press, said that "there is no final decision in the context of the next round of customs duties". As a result, this process has so far been halted. Perhaps to give a chance for real negotiations (unlikely at the moment), or perhaps just not to "shoot out" too quickly from elements of pressure on Beijing (more likely). However, it seems that customs duties will be introduced (perhaps in instalments), as neither China nor the USA has so far shown any willingness to ease the current dispute. This should help the dollar, but only when a long customs war becomes a realistic scenario. For the time being, the market does not believe in it or tries to underestimate this problem.

Stable situation on zloty

The Polish currency remains relatively stable. Although the USD/PLN tested the 3.75 level in the morning (on the EUR/USD drop wave) but before midday, the situation calmed down and the pair dropped to 3.73 boundary. The situation is similar for the EUR/PLN pair. The zloty is clearly not in the speculators' spotlight which should be regarded as positive information and appreciation by foreign investors of the external balance of the economy in 2013-2017.

However, if the scenario of a trade war between the USA and China becomes real, then the Polish currency will be under pressure. It is still possible that in September the dollar may cost 3.80-3.90 PLN, and the euro will start to move towards 4.35-4.40 PLN, if, apart from customs issues, a hawkish message from the FOMC appears. On the other hand, the next few hours should not be particularly nervous if the day is free of official announcements concerning US customs duties.