Sentiment improvement (Daily analysis 4.01.2019)

After the fall on the US markets, the session in Europe brings a strong rebound. Better condition of emerging market currencies, including the zloty. Data from the US labour market may have little impact on the broader market.

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.: Data from the US labour market. Change in nonfarm payrolls (estimates: 184 thousand), unemployment rate (3.7%). Change in the average hourly earnings (estimates: 0.3% month-on-month and 3.0% year-on-year).

After breakdown, strong rebound

After Thursday's fall in the equity market, the European session brings strong growth in market indexes. The first element that improved moods were reports confirming that there will be a meeting between representatives of the US and Chinese administration on foreign trade. The talks are expected to take place next Monday and will be attended by mid-level officials (chaired by deputy ministers).

The timing of a hypothetical improvement in relations seems to be ideal. The global market bleeds, so maintaining a truce or eliminating part of the duties will be easily explained by economic reasons, and politically nobody will lose face. In addition, Beijing is indeed beginning to reduce the requirements for investment in the Middle Kingdom by withdrawing from the forced transfer of technology, which until now has been one of the main elements of the trade conflict.

During the European session, China also lowered the rate of mandatory reserves, which will free up capital to increase credit activity. This decision, although not particularly surprising, helped to improve sentiment before the opening of the US markets on Friday.

As a result, the futures contract on S&P 500 gains about 1.5%. The risk-sensitive Turkish lira and the South African rand are also clearly appreciating on the currency market. The yen is slightly weakening, but the movement is symbolic given the scale of the last strengthening.

If we consider Europe, it is worth looking at inflation data from the eurozone for December. There is no evident pressure on price increases. In core terms, inflation is only 1.0% year-on-year and has remained around these levels for months. The prices of the services are also rising extremely slowly (1.3%). Inflation, which is cleared of volatile factors and those that are not affected by monetary policy, is still far from the ECB's target, and this may be an argument to withhold interest rate increases at some point, especially as the economic situation does not spoil the economy either. Opportunities for euro appreciation in the global market remain limited.

Stable zloty before publication in the USA

As is traditionally the case on the first Friday of the month, the US Bureau of Labor Statistics (BLS) will publish data on employment, unemployment and wages.

Usually, this data has a strong impact on currencies, but in the current situation, it seems that the market rather tries to focus on leading indexes (e.g. ISM), trade negotiations or suggestions from the Fed. As a result, if there is no strong surprise (especially in the context of wages, where the forecast is 3.0% year-on-year and 0.3% m/m), the currency market will probably ignore the December report.

The Polish Central Statistical Office (GUS) published preliminary data on inflation for December. The reading was in line with the Bloomberg consensus (1.1% year-on-year), but at the same time, it was the slowest price increase in two years. The data was ignored by investors, mainly due to the fact that the bar for any interest rate changes is now set very high and the baseline scenario remains unchanged for the next few quarters. It is likely that BLS data from the USA will also have little impact on the zloty, assuming that the estimates of wages in the USA will not deviate from consensus by more than 0.1 percentage points.