Indexes have limited impact (Daily analysis 03.04.2018)

Strong drops in US indexes with limited impact on the currency market. The European PMI clearly below expectations. According to Polish Central Statistical Office (GUS) data, the public finance sector deficit in 2017 amounted to 1.5% of GDP. EUR/PLN close to the 4.21 boundary.

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.

Market insensitive to changes

During Monday's session in the USA, the indexes recorded strong drops of about 2%. This was caused by the weak condition of the technology companies and continued concerns about the trading relationship between Washington and Beijing.

Strong aversion to risky assets (shares) in the United States was not seen in quotations in Asia or Europe. Declines were observed in these markets, but reaching the worst quarter opening in 89 years (according to Bloomberg's calculations) was still far off.

This limited reaction indicates that global investors may perceive US problems as a local event. This, in turn, does not result in a stronger flow of capital between developed and emerging markets. Moreover, it does not create an environment for rapid currency movements. Therefore, as long as market fear remains under control, main currency pairs are likely to be under limited changes.

Apart from sentiment issues, in the morning IHS Markit published the final PMI data from the eurozone industry and readings from the UK. Data from the single currency area confirmed preliminary estimates that industry growth will slow down to its lowest levels in 8 months. The economic indexes of Ireland and France reached 12-month lows.

The subindexes in the eurozone also failed to meet expectations. New orders and production fell to their lowest levels in November 2016. The decline in the overall PMI level for the industry from 58.6 to 56.6 points has been the biggest since June 2011, according to comments by Chris Williamson, Head of IHS Markit economists.

On the other hand, the PMI from the UK industry was within the expected range (55pts). The data was relatively good, given the continuing uncertainty over Brexit and the heavy snowfall on the Isles. However, slower growth has been seen in the context of new orders and employment.

The overall readings from the eurozone indicate that the optimism seen at the beginning of the year is likely to be cooled down. For the UK, more moderate growth is likely to be continued, although at a somewhat slower pace than in the single currency area.

Stable zloty

The zloty, like other currencies in the region, reacted relatively calmly to the strong share price drop during Monday's session. IHS Markit, as in the case of the eurozone or Great Britain, has published PMI data for Polish industry. The index remained at 53.7 pts (consensus indicated 53.0 pts).

However, it is not optimistic. Apart from the fastest growth in employment in a year (a positive element), the growth pace of new orders also slowed down to 8-month lows. In general, as in the case of the eurozone's PMI, it is still too early to draw conclusions about a deeper economic slowdown in Poland or the European Union. Therefore, for the time being, a continuation of the economic situation at the level seen in the past quarters should remain as a core scenario.

The GUS's publication on the deficit in the public finance sector at the level of 1.5% in 2017 (the lowest deficit in at least 22 years) can be seen as positive (also in the context of the zloty). Additionally, due to the economic growth and strengthening of the Polish currency (debt denominated in foreign currency decreased by 35 billion PLN), the debt to GDP rate decreased from 54.2% to 50.6%.