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Markets break records, powers reduce duties, currencies are stable (Daily analysis 6.02.2020)

6 Feb 2020 12:30|Bartosz Grejner

Next records are noted on the markets in the USA and Europe. Positive sentiment prevails on the broader market, even though today the data from Germany surprised negatively. The EUR/USD exchange rate is still at 1.1000. The zloty, now slightly weaker, is depreciating about 0.2% in relation to the main currencies except for the pound.

USA and China were fighting and now they are reducing duties

Even before the beginning of the European trading session, the German Statistical Office (Destatis) reported data on machinery orders in December. Quite unexpectedly, they decreased by 2.1% on a monthly basis, although they were expected to grow by 0.6%. The negative impact of this publication was slightly reduced by the upward revision for November (by 0.5 percentage points), although the data may still suggest that the recovery in German industry may be somewhat slower than expected.

However, market sentiment remains positive, supported, among others, by a series of better-than-expected macro data from the US economy. This led to the growth of (a part of) the market indexes to historical highs. The market sentiment was also strongly supported by the decision of the Chinese government, which announced this morning (European time) that it would halve the duty on imports of certain goods from the USA. This is a reaction to a potential economic slowdown due to the virus. According to a statement by the Chinese Ministry of Finance, duties are to be reduced from 5% to 2.5% and from 10% to 5% as from February 14th. In total, they are to apply to goods imported from the US worth around 75 billion USD. Moreover, on the same day, the USA also cut the customs duties on imports from China by half.

At first sight, the current very good sentiment in the broader market may come as a bit of a surprise, given the continuing threat of the virus and the lack of data on the extent to which the global economy might be affected. The sentiment is strongly supported by the very mild monetary policy conducted by the major central banks in the world which provide more liquidity to the market. Market participants are prepared (and accustomed) to the fact that central banks will intervene in case of negative events that could potentially affect economic growth. Today's decision by the Ministry of Finance in China to cut duties on some US goods only reinforces this effect.

Zloty lost the pace in which it pared losses

Given the positive sentiment, the main currency pairs have remained relatively stable until midday. The EUR/USD exchange rate, after falling to 1.1000 yesterday, continues to oscillate around this level. It is likely that tomorrow's labour market report will strongly increase the fluctuations of the dollar.

No further appreciation of the dollar and the domination of positive sentiment in the market allow the zloty to maintain most of the increases generated yesterday. The zloty basket is slightly weaker today. At midday, the Polish currency lost about 0.2 percent in relation to the main currencies, excluding the pound, which was globally slightly weaker. The zloty is reacting to yesterday's rapid growth, the EUR/PLN exchange rate rose to nearly 4.26 (yesterday it fell to about 4.2360), and increased fluctuations can be observed tomorrow, near the publication of data from the US labour market.

6 Feb 2020 12:30|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:

5 Feb 2020 16:30

Zloty strongly appreciates and again better data from the USA (Afternoon analysis 5.02.2020)

5 Feb 2020 12:58

Better sentiment supports the zloty (Daily analysis 5.02.2020)

4 Feb 2020 17:55

Industry in the USA again surprises (Afternoon analysis 4.02.2020)

4 Feb 2020 13:36

Improvement in sentiment supports the zloty (Daily analysis 4.02.2020)

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