Risk of sharp drops (Daily analysis 02.02.2018)

02.02.2018 12:50|Marcin Lipka

The sentiment on the broad market is deteriorating as shares are falling and the yields on Treasury bonds are rising. The dollar remained weak. The EUR/PLN pair was around 4.16, but the pressure on the Polish currency remained limited. However, the changes of more rapid movements that depend on global moods are growing.

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.: The situation on the labour market in the USA. Unemployment rate (estimate: 4.1%). Change in payrolls in the non-farm sector (estimate: 180k). Change in wages (estimates: 2.6% YOY and 0.2% MOM).

Weaker sentiment

At the beginning of Thursday's session, we had the impression that US indexes may start to pare some past losses. However, the closure was weaker and future contract quotations for the US indexes were under pressure from sellers as well as from European market shares.

The strengthening of the dollar, as well as capital outflow from the emerging markets, may appear to be due to drops on exchange markets combined with increases in yields on the US treasury bonds. Currently, this trend hasn’t been observed or shown on US currency quotations. The EUR/USD remains close to the 1.2500 boundary, close to three-year highs.

Perhaps some investors believe that current quotations represent temporary deterioration in the sentiment. However, if the share price deterioration deepens and the market continues to value the accelerated tightening of the US monetary policy, waves of significant capital outflows from EMC economies could be observed (a reversal of the inflow observed last year). However, it is very difficult to precisely determine the exact beginning of this process.

Important data that can be ignored by the market

A report from the US Department of Labor, the most important macroeconomic data, will be published today. Although the report is based on a rather small sample (in both households and businesses), the market very often waits in excitement of this data.

However, now the market's attitude may change significantly towards this data. The data’s interpretation could be very selective. In addition, previous ADP data was solid (approx. 50k higher than estimated), which means that the expectations for payrolls may likely be higher than the consensus (180k).

Recently, data on wages started to attract much more attention than the number of payrolls or the unemployment rate. This data is important due to the fact that higher wages should translate into stronger inflationary pressure as well as faster than expected interest rate increases by the Fed. However, the currency market has practically ignored recent signals from debt instruments. This may mean that today's publication will not be received in the standard way.

Calm zloty

The zloty depreciated in relation to the forint or the euro in the morning. Later, it pared these relatively limited losses, meaning that the zloty, like other EMC currencies, is currently immune to depreciation or increases in the yields of the US treasury bonds. However, if risk aversion worsens, the zloty will have problems with maintaining current levels.

As usual, the moment when the increased volatility on the zloty will likely occur will be around 2:30 p.m., when data from the US labour market will be published. However, it seems that given the recent discorrelation between asset classes, the currency market may want to perceive the data as negative for the dollar, regardless its value. In this type of scenario, the Polish currency shouldn’t lose value.


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

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