Positive PMI data from the eurozone (Daily analysis 21.02.2020)

Activity in the industrial and the service sectors in the eurozone surprised positively in February. This may protect the European currency from stronger depreciation. The EUR/USD exchange rate is now around 1.0800. The zloty is somewhat weaker with continued increased risk aversion.

German industry shows signs of life

The PMI indexes for the eurozone came as a positive surprise, although there were concerns about the negative impact of coronavirus. Both the industrial sector indexes (49.1 vs expectations at 47.4 points) and the services indexes (52.8 vs 52.3 points) increased above expectations. Particularly welcome is the rebound in the industrial sector, which has come close to the limit of increasing activity (50 points).

Germany was mostly responsible for the strong rebound in the industrial sector in the eurozone. The industrial PMI index rose in February to its highest level in 13 months. This may reduce somewhat concerns about the impact of coronavirus on the European economy and support the euro or at least stop its weakening somewhat. The EUR/USD quotations oscillated around the 1.0800 boundary in the afternoon. PMI data also clearly supported the main market indexes that were around yesterday's closing level.

Happy hours for the zloty

Better-than-expected data from the eurozone, support for the single currency and the lack of discount on the equity market are probably the best scenario the zloty could have hoped for. However, the zloty was depreciating in relation to the main currencies. The EUR/PLN exchange rate rose to nearly 4.29 PLN, the highest level since February 4. Although the USD/PLN exchange rate did not reach new highs and was slightly below 3.97, it is still the highest level since the first days of October last year.

Despite slightly higher than expected activity in the industry and the service sectors in the eurozone, the baseline scenario for the market has remained practically unchanged. Apart from the equity market, which is still close to its historical highs, the behaviour of the remaining part of the market (e.g. bonds, the dollar or gold) indicates an increased concern about the impact of the coronavirus. This higher level of risk aversion will most likely keep supply pressure on emerging currencies, including the zloty. The discount on the equity market may increase this pressure.