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Market pares most of yesterday's losses (Afternoon analysis 16.08.2018)

16 Aug 2018 15:40|Bartosz Grejner

The market sentiment on Thursday was much better than on Wednesday. Both the euro and the zloty are making up for yesterday's losses. Data from the single currency region as well as from the US are likely to support the positive situation in the broad market.

Stronger zloty, albeit sensitive

After yesterday's worsening of the sentiment, today we observed a rebound in the market. Both the main indices of European stock markets and the euro gained in value. The improvement of the sentiment should not be disturbed by macroeconomic data received during the day either.

The eurozone's trade balance published by Eurostat showed a surplus of 22.5 billion euros in June. This was 4.5 billion euros more than assumed by the market consensus and at the same time it has been the highest surplus since March. Once again, the figures for initial jobless claims in the US are surprised on the positive side. Last week initial claims were at 212.000, 3.000 below market expectations. The total number of persons covered by unemployment insurance also fell to 1.721 million, which was the lowest level in 1.5 months.

As a result, the main currency pair, i.e. EUR/USD, approached the level of 1.14. However, it is still relatively close to yesterday's lows, which were over one-year lows. Deterioration in the sentiment in the evening would probably move EUR/USD prices back to around the 1.13.

This would be a negative scenario for the zloty. Yesterday we had a sample of what could happen in the event of a significant increase in risk aversion. The EUR/PLN pair went as high as 4.34 (most in a month), and USD/PLN as high as 3.84 (most in 15 months). Today, these levels were about 0.03 and 0.05 lower respectively, but drops in the US stock markets combined with the strengthening of the dollar may result in a renewed outflow of capital from emerging markets and weaken the zloty.

Tomorrow's preview

At 10 a.m. the Central Statistical Office (GUS) will present data from the enterprise sector on the average wage and employment levels in July in Poland. The strong sell-off of the Polish zloty against most of the key currencies in recent days has been mainly a result of external factors, mainly due to the crisis in Turkey and the rapidly strengthening dollar.

Therefore, the above-mentioned data may have a limited impact on the zloty at present. However, bringing wage growth closer to or above 7.8% (6.5-year highs) could mean more upward pressure on inflation. In the context of good data on the Polish economy (GDP, industrial production, retail), it could support the value of the zloty, especially in the event of a return of a better sentiment to the broad market.

Eurostat will publish data on consumer inflation (CPI) in the euro area at 11 a.m. in July. However, this will be the second reading and the chances are low that the final result will be much different from the first one. However, if the core inflation rate deviates from the 1.1% year-on-year by as little as 0.1pps, we can observe an increase in fluctuations on the euro.

The University of Michigan will publish at 4 p.m. its preliminary data on the consumer sentiment index in the US in August. The median of market expectation is 98.0 points, 0.1 points above the July level. Given the very good condition of the US economy, the likelihood of a significant fall in this indicator is very low. Its impact on the dollar in the light of recent market developments should also be limited.

16 Aug 2018 15:40|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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Limited changes to the zloty (Afternoon analysis 14.08.2018)

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The zloty regained some of its losses (Afternoon currency comment of 13.08.2018)

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9 Aug 2018 15:55

A marginally weaker Polish zloty (Afternoon analysis 09.08.2018)

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