Sentiment in May did not improve (Daily analysis 4.05.2020)

The PMI data for Polish industry is the worst in the history of the study and below expectations, yet consistent with other European economies. Investors' confidence in the eurozone for May is not improving in relation to April. On Friday, an important report from the US labour market will be published.

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.: Machinery orders in the US in March (estimates: -9.4% m/m).

Monday starts with negative sentiment on the markets. The European market reacted to Friday's deterioration in sentiment after US President Donald Trump and Mike Pompeo (Secretary of State) tightened rhetoric against China, bringing back the spectre of tariffs. Additional trade difficulties during a deep recession would have significantly slowed down the rate at which economies would return to growth, so market participants reacted negatively to these reports. It should be remembered, however, that presidential elections are approaching (November) and a tough stance towards China is part of Trump's campaign.

Record low activity of Polish industry

In the morning, the PMI industry data for April were published. The readings from the eurozone did not differ significantly from the preliminary data (33.4 vs 33.6 points according to the preliminary evaluation). The result of activity in Polish industry (the only reading for April) is far from expectations. Activity at 31.9 pts. was lower than the expected 34.6 pts. (and by 10.5 pts. below March), which was also the lowest level ever recorded in the history of this survey (since 1998).

However, the scale of the recession in the sector has been even greater if we consider that the final index value overstates record delivery times, which can normally be a sign of high demand. The market, though, is now largely ignoring macro-economic data and is looking ahead to increased activity. April is behind us, probably the worst economic month in the pandemic, and the gradual opening up of some economies will increase economic activity.

Nevertheless, it is becoming more and more certain that it will take longer than initially expected to return to the pre-pandemic state. Especially as there are justified concerns about the return of higher numbers of virus infections in the autumn-winter period, which may also prevent countries from lifting the restrictions completely by that time. This, somewhat more cautious approach, is well illustrated by the eurozone confidence index for May published today by sentix. The reading at - 41.8 pts. is only marginally higher than in April (- 42.9 pts.) and clearly below the expected -28 pts. despite the planned lifting of restrictions in some countries in the area in the first days of May.

The truth about unemployment will trigger a movement in the currency market?

The zloty's quotations remain relatively stable and within a fairly narrow fluctuation range in the context of recent weeks. The dollar appreciated slightly today, although this was mainly due to the effect of discounting its weakening on Friday when the EUR/USD exchange rate rose above 1.10 for the first time in a month. Today, the main currency pair was already trading a little closer to 1.09, although this still indicates a relatively weakened US currency (in the context of the last four weeks).

The increased activity of industry and services in May in most economies should help emerging countries' currencies (including the zloty) and keep the dollar from appreciating. The most important event and test for both the dollar and the market will be Friday's report on the US labour market in April. It is known that it will be absolutely disastrous: the median of economists' expectations indicates 16% unemployment and employment reduction by nearly 22 million jobs. However, the data in the report may differ significantly from the consensus and we can expect significant fluctuations on Friday.