Sales fail to meet expectations, but euro is stable (Daily analysis 5.12.2019)

Lower than expected data on industrial orders in Germany and retail sales with a minimal impact on the market. The EUR/USD exchange rate fluctuates around 1.11 and only slightly. However, it may change tomorrow. The zloty is somewhat stronger, and the EUR/PLN is close to the 4.27 level.

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.: Initial jobless claims in the USA (estimates: 215k).
• 2:30 p.m.: The US balance of international trade in October (estimates: -48.5 billion USD).
• 4:00 p.m.: New orders in the industrial sector in the USA in October (estimates: +0.3% month-on-month).

Declines in all sales categories

The data from the US economy published yesterday evening were not attractive. Lower employment growth (ADP) in the private sector and activity (ISM) in the service sector (similar to industry), which also disappointed expectations, do not provide arguments for monetary tightening in the USA. This is negative news for the dollar, which weakened after the data were published. The EUR/USD exchange rate rose above 1.11, the highest level in a month. In the subsequent hours, the exchange rate fell below this level and dropped slightly below 1.11 by midday today.

Expectations regarding the conclusion of the first phase of the US-China agreement may protect the dollar from a greater depreciation. Contradictory information on this subject has been coming from the US part in recent days. This is probably an element of the White House administration's negotiating strategy. If the agreement is reached before the end of this year, the dollar may appreciate somewhat in the short term. After a series of weaker data from the US, investors are also looking forward to the report from the US labour market, which will be published tomorrow.

Recent weeks have gradually built up the idea that the economy is recovering, but today's figures have turned out to be slightly below expectations, and therefore, the euro was not supported. Destatis published data on orders in the industrial sector for October this morning. There was a decrease of 0.4 % on a monthly basis, while it was expected to increase by 0.4 %. The decrease was 5.5 % on a yearly basis, exceeding the consensus of 4.7 %. Data on orders are subject to relatively large fluctuations but may indicate what trend can be expected in production in the industrial sector.

Today, the data from the euro area have also failed the expectations. Although the economic growth pace in Q3 was in line with the consensus (this was another reading) and amounted to 1.2% per year, the data on retail sales were slightly weaker. Sales in the eurozone decreased in October by 0.6% on a monthly basis, while in the whole EU the decrease was only slightly smaller - by 0.4%. If we compare these data to the sales volume from October last year, it will turn out that there was an increase of 1.4% and 1.9% respectively. However, both on a yearly and monthly basis, the readings failed the market expectations. Declines compared to September were visible in all categories regarding sales, including clothing, footwear and textiles, by 0.8% in the eurozone and by 1% in the EU. However, the data will have a limited impact on the broader market.

Investors focus on Friday's data

The market participants are already focused on the Friday publication of the US Department of Labor, in which we will learn, among others, how the average wage has changed and to what extent employment has increased. By tomorrow afternoon, we should observe stabilization on the currency market combined with the positive sentiment on the equity market.

Today in the morning the zloty was appreciating. These were minor changes, but the EUR/PLN exchange rate is slowly approaching 4.27 PLN, which is the lower limit of quotations from the last three weeks. Later in the day, there will be a publication of data from the USA on the number of initial jobless claims, international exchange and orders in the industrial sector. However, apart from the increase in the level of fluctuations, fundamental changes should not be expected before tomorrow's publication of the labour market report.