Good data from the USA (Afternoon analysis 1.02.2019)

Another month, another strong increase in employment - the US labour market may support the dollar. The zloty returns part of the increases made yesterday after the third consecutive month of PMI readings below 50 points.

EUR/USD moves away from 1.15 level

The US labour market report for January was the most important Friday publication. Although the partial shutdown of federal institutions might have somewhat distorted the data, it was relatively good. Employment in the non-farm sector increased by 304k, i.e. the highest for 11 months, even exceeding the ADP reading from Wednesday.

Slightly more important data due to its impact on inflation regarding wages also did not turn out to be weak, which could have been feared during the ongoing shutdown. According to the consensus, the average hourly wage increased by 3.2% per year. At the same time, December data was revised upward by 0.1 percentage points to 3.3%. This very good image may be slightly distorted by the month-to-month growth data, which amounted to 0.1% compared to expectations at the level of 0.3%.

Half an hour after the beginning of the New York session, ISM also published PMI data for the US industry, which surprised positively. After falling to 54.3 pts in December, it rose to 56.6 pts in January. This is still far from the November level (59.3 points), but it was a reading 2.3 points above the market expectations. Combined with the second consecutive month of solid data from the labour market, the ISM index clearly raised its quotations both on the equity market, contributed to an increase in US Treasury bond yields and strengthened the dollar slightly.

The increase in ISM was mainly driven by an increase in the sub-indexes of production and new orders. What may slightly cool down emotions is a significant fall in the price index - from 54.9 to 49.6 points, suggesting expectations of lower price pressure. The EUR/USD quotations fell to around 1.1450. Today's data from the USA is positive, which, despite the change in the Federal Reserve's attitude towards a milder monetary policy, may stop the dollar from depreciating.

Especially as data from the eurozone is weak and the Brexit continues to create a high degree of uncertainty for the pound. Another month of better than expected macro data could mean an increase in the chances of monetary tightening in the US, something which is unlikely to be observed in the eurozone. Ultimately, the dollar does not have to lose as much as we could expect at the moment if the delayed US GDP data in the Q4 (the publication date is not yet known) does not disappoint either.

The aforementioned good data from the USA and the dollar's partial recovery of losses are not so good news for the zloty. The Polish currency strengthened significantly on Thursday after better than expected GDP growth pace, but this trend has not continued today. The weakening may have been partly caused by the realisation of profits, partly for the third consecutive month of the PMI reading of the Polish industry sector below 50 points, although it was slightly higher than expected. The EUR/PLN increased from 4.26 to about 4.28 in the afternoon. The relatively better economic situation of Poland in relation to the eurozone, however, helps to keep the zloty basket in good shape.

Next week's preview

On Tuesday, retail sales data for the eurozone in December will be published. Recent publications of macro data from this region do not build a positive image. A significant decline in retail sales, which could indicate lower consumption, could weaken the euro. On the same day, in the afternoon, ISM will present data on PMI of the US service sector in January. Both the services sector and the industry sector recorded declines in December more than expected. Given that decisions on interest rate increases in the US will largely depend on incoming data, the US currency may also react more strongly to the publication of relevant data, including ISM, if it deviates significantly from consensus.

Destatis will present industrial production data for Germany in December. Its drop (by 4.7% year-on-year) in November was the largest in 9 years so that the market may pay special attention to this publication. This was only one of many publications on the German economy that was weaker than expected. The next month of such large falls (currently the median of expectations assumes a decrease by 3.0%) may further worsen the economic prospects of the eurozone and slightly increase the supply pressure on the common currency.

On the same day, the Bank of England will also present a statement on interest rates and, at the same time, a record of discussions at the meeting of the Monetary Committee. It is practically certain that neither the level of interest rates nor the level of the bond purchase program will change. Future monetary policy depends to a large extent on what form the Brexit will take. For the pound quotation, a discussion among the members of the Bank of England about current events in the British Parliament, their expectations regarding developments as well as their impact on the economy and currency may be important. Postponement of the Brexit is, on the one hand, good news because it gives a chance to work out a better agreement, but on the other hand, it prolongs the level of uncertainty, which may have a negative impact on economic growth and, as a result, the currency. Therefore, we can expect an increase in the pound's volatility around the publication time.