Labour market important, but not crucial (Daily analysis 5.10.2018)

The market awaits data from the US labour market. This is an important reading, but given the hurricane that was destroying the states on the east coast of the USA, or the limited sample of research, too much deviation from the consensus does not necessarily lead to a strong reaction to currencies. The zloty remains under limited pressure. Before midday, the EUR/PLN is quoted slightly above 4.31, and the dollar close to the 3.75 PLN limit.

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

• 2.30 p.m.: Monthly data from the US labour market. New payrolls in the non-farm sector (estimates: 185k). Unemployment rate (3.8%). Change in hourly wage (estimates: 0.3% m/m and 2.8% y/y).

Data impact does not have to be dramatic

Friday afternoon will be driven by readings from the US labour market. Recently, macroeconomic data from the US has been very good which supported the dollar and raised the yields of government bonds to multi-year highs. Also, comments from FOMC members suggested a strong commitment to the monetary tightening path presented in September, rather than arguments for slower interest rate increases. All these elements can be supported by today's data from the Department of Labour. However, if the data fails, then the negative reaction of the dollar will be rather short-lived. Why?

The labour market survey (both among households and companies) is carried out on a limited sampling. Moreover, the data is seasonally adjusted, but this adjustment is not always ideal, which means that differences from month to month are greater than the longer trend shows. The data is also often revised in the following months, which makes it necessary to look at the one-month reading with distance.

The September publication contains one more mysterious element. Surveys were carried out during a hurricane that hit the US. Usually, the impact of such events is negative on the number of new payrolls. However, it is difficult to say to what extent. In the case of an analogous publication of ADP, no such impact occurred.

In the context of the future monetary policy of the USA, the change in hourly wages is a much more important reading. It is this, together with the level of unemployment, that should show well the tensions in the labour market. Last month, wages increased by 2.9% y/y, which was the best result in over 9 years.

However, in the case of wage data, as today's Bloomberg Economics study points out, there may be a slight increase in the hourly wage. What is the reason for this? Usually, the recovery from natural disasters increases wage pressure in a region. In addition, skilled workers earn much more than the usual service representatives (trade, restaurants).

As a result, the hypothetical lower increase in payrolls and perhaps a faster increase in salaries could be blamed on hurricane issues. This will be particularly evident when, shortly after publication, many opinions "explain" the above issues. Therefore, if there is a strong impulse from individual readings, it will be mitigated by the arguments mentioned above. It seems, that today's data does not necessarily harm or help the dollar. In the longer term, however, the arguments supporting the dollar and putting pressure on the EUR/USD are not expected to disappear quickly.

Zloty under limited pressure

The zloty is slowly depreciating. However, these are still not strong declines, which should be considered a positive factor for the Polish currency in the context of the following months. It is likely that today's macro data from the USA should have a relatively small impact on the zloty. The higher than expected readings (e.g. wage growth by 3.0% y/y or a stronger than expected fall in unemployment) may harm the zloty and lead the USD/PLN pair even towards 3.80. In such a scenario, the franc and the euro would also be valuated a little higher.

Currently, the scenario of a relatively mild reaction is more likely (details in the previous paragraphs). The data can either be mixed, or the disturbances will soon be explained by the last hurricane. As a result, the Polish currency will rather quietly accept publications from the USA, but will remain under moderate pressure from a strong dollar, high oil prices or average sentiment towards the currencies of emerging countries.