Improved sentiment in Germany (Daily analysis 18.12.2019)

German entrepreneurs in more positive sentiment - the ifo institute's business climate index rose to its highest level in six months. The dollar appreciates slightly in the morning, but changes observed in the currency market are limited. The EUR/USD exchange rate is within a small fluctuation range. The zloty is stable, but the CHF/PLN exchange rate rises to approx. 3.91 due to the global appreciation of the franc.

There is hope for the next half of the year

The German business climate index published today reached its highest level in six months in December, giving more hope for recovery in Europe's largest economy. The ifo index at 96.3 points was also by 0.8 points above the market consensus, as the two components of the index: the current situation and the expectations. Strong growth (from 92.1 points to 93 points) was evident in expectations, most likely due to slightly better recent export data and the achievement of the first phase of a trade agreement between the USA and China.

In-depth data analysis reveals that the improvement in sentiment in December was due to the service sector. The assessment of the current situation in the manufacturing sector declined slightly, but expectations for the next six months increased clearly. While a single reading of the ifo climate index changes little, it can help sustain the positive sentiment that persists in the broader market. An increase in activity in the eurozone economy, especially in industry, is expected in the first phase of next year, and today's better than expected data from Germany fit in well with this argument.

The Republicans give Trump solid support

The data had, however, a limited impact on the euro. It is likely that till the end of the year, we will see limited changes in the currency market. And such a scenario is taking place (at least until midday) even today. The dollar index (DXY), which measures its strength in relation to the six main currencies, increased slightly (about 0.1%), although this is still its lower level in the last five months. The EUR/USD quotations moved in a limited fluctuation range just before midday, remaining at approx. 1.1130. The probability of significant changes is rather low due to the practically empty calendar of macroeconomic events being published today. Although there will be a vote on the impeachment of the US President, it does not affect the market. This is mainly because the Republicans are still giving Trump solid support.

Wage growth pace still above 5%

After yesterday's, higher than expected core inflation and current account surplus readings from the Polish economy, today there were published somewhat mixed data from the enterprise sector. According to the Polish Central Statistical Office (GUS), in November, employment increased by 2.6% yearly and the average wage by 5.3%. While in the case of employment, it was by 0.1 percentage point above both expectations and the October level, in the case of the average wage, it was not so good. An increase of 5.3% year-on-year turned out to be 0.6 percentage points below the previous month's growth and also below the median of the market expectations. Although the continuing and relatively high growth pace of the average wages, which has remained above the 5% threshold since August 2017, is still satisfactory, it is also the lower limit of readings from this period. Therefore, we should not draw too far-reaching conclusions yet, but a decrease in the growth pace below 5% in the following months may be one of the signs of the expected slowdown in growth in the whole economy.

The zloty, just like most of the major currencies, reported limited changes until midday today and is still in relatively good shape. The EUR/PLN pair appreciated slightly above 4.26 and the USD/PLN pair increased by around 3.83, but these are still levels close to the lowest ones in more than a month. Again, the CHF/PLN exchange rate rose above 3.90 to nearly 3.91, although this was mainly due to the strengthening of the franc in the last two days. In relation to the euro, the franc was the strongest in a month and against the dollar since the end of August. However, the likelihood of further significant strengthening of the franc seems to be limited.