Market insensitive to data (Daily analysis 8.01.2019)

Dreadful data from the German economy did not affect the European currency. The market awaits new information on foreign trade and comments from the Federal Reserve.

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 ignores data from Germany

Very often, when the data is so unexpectedly negative (the forecast was at minus 0.7% year-on-year), we are dealing with a one-off event, weather issues or other extraordinary reasons for such a dramatic decline. This time, unfortunately, it looks really weak and the collapse in production is very wide.

It concerns all components of production - from construction, through extraction of raw materials, to manufacturing. The decrease was visible in both consumer goods and capital goods. The data is not a one-off collapse due to the fact that industrial orders have been suggesting a slowdown in the sector for several months now. The slowdown is not limited to the automotive sector, as suggested in many macroeconomic reports (e.g. Bundesbank).

This indicates that the fourth quarter's results may again be weak (in Q3 the GDP in Germany declined by 0.2 per cent q/q). It seems, however, that the recession in Germany is unlikely to be seen, as the analysis from Bloomberg Economics suggests. The economy is likely to be saved by retail sales, which increased by 1.1% y/y in November and by as much as 5.2% y/y in October. However, the GDP in Germany rose well below 1% in 2018 as a whole, although Bundesbank expected growth of 1.5% in mid-December last year.

Today's data significantly worsen the prospects for the European economy, especially given other events in the Union (Italian problems, protests in France, Brexit, trade tensions). Why did the euro not depreciate and still cost around 1.450 USD?

It seems that recent comments from Fed representatives have triggered this. At the moment, the dollar is not the first choice of investors when it comes to the problems of the eurozone. The common currency may also be partly helped by reports on the easing foreign trade dispute.

In the morning Bloomberg reported that positive information was coming from this year's first round of negotiations in Beijing. On the Chinese side, the details of these talks will be published soon, and Wilbur Ross, US trade secretary, said in an interview with the CNBC that there is a good chance that we will have a meaningful agreement. Since the absence of a trade war is more helpful to the eurozone than to the United States, it is possible that this also prevents the euro from falling.

Zloty remains calm

The national currency reacted very calmly to reports from Germany. The weakening of the zloty was symbolic. Other currencies in the region are also stable, maybe apart from the lira, but its weakness results more from the geopolitical situation in the region than from issues related to the global economy.

In the following hours, stabilization seems to be the base scenario for the zloty, especially as foreign indexes, just like the global currency market, do not send negative signals. The EUR/PLN exchange rate is likely to fluctuate close to the 4.30 boundary.