Set of positive signs (Daily analysis 3.12.2018)

The trade truce between China and the USA improves global sentiment. Higher oil prices reduce the negative impact of incoming data on the dollar. The zloty appreciates despite the worst PMI readings from Poland in over 4 years.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 4:00 p.m.: US ISM index for industry sector (November estimates: 57.5 pts.).

USA - China trade agreement

The G20 summit was successful in the context of China-US relations. Above all, there was no escalation of the conflict, and the increase in tariffs to 200 billion USD for annual imports from China was halted. The parties gave themselves an extra 90 days to negotiate, which seems enough to discuss the most pressing issues.

Apart from the continuation of talks and stopping the introduction of higher tariffs, China is also expected to increase imports of food and energy industry products from the USA. The success of the summit does not mean that most of the issues have been resolved. It is well illustrated by the differences between the statements issued by both sides after the meeting.

The differences that Bloomberg gathered relate to the issues to be negotiated. The US specifies that this will be "forced technology transfer, protection of intellectual property, non-tariff barriers and cybercrime". China only refers to working out a consensus on differing issues. The US version is also more precise on the need for the timely implementation of changes (e.g. a 90-day deadline for negotiation progress). China, in turn, is counting on more bilateral meetings at the highest level, while the Americans do not mention them. In general, however, it should be recognised that the G20 ended in a positive way.

What does it mean for dollar?

Success at the G20 should have a negative impact on the US currency. A better economic situation in Asia is likely to be more supportive of the euro and local currencies than of the dollar. The EUR/USD exchange rate has been rising since the beginning of the Asian session, but this increase was rather weak and practically extinguished around midday. Why such a weak response?

Recently, the Federal Reserve has started to suggest that interest rate increases could be terminated earlier than expected. One of the main reasons was the issue of trade tensions. Now they may decrease slightly, so the early termination of the monetary tightening is not a foregone conclusion (positive for the US currency). Oil prices also rose in recent hours (expected OPEC agreement, a better economic situation due to the reduction of trade tensions). This also helps the dollar, at least in the current conditions. Some investors may expect that a truce with China could put more pressure on the EU in terms of car tariffs. In our opinion, these fears are exaggerated, but it is not excluded that such a scenario will take place in the future.

As a result, increases in the EUR/USD are limited. The currencies of emerging markets appreciate more. The Chinese yuan and Korean won are appreciating by about 1% in relation to the dollar and a little less to the euro. The zloty and the forint are also stronger, although in the case of our region's currencies this growth does not exceed 0.3-0.4% to the main currencies.

Disastrous PMI from Poland

On Monday, the Polish economy received very weak data. The PMI index for the industry fell below 50 points, which separates growth from regress, and amounted to 49.5 points. This is the lowest reading since September 2014 according to data prepared by IHS Markit. Individual PMI sub-indexes also show the second increase in new orders in three months and the worst moods (for the next 12 months) since January 2013, i.e. for less than 6 years.

Trevor Balchin, head of IHS Markit, in his comment on the data, pointed out that the main index was adversely affected by "production volumes, number of new orders and employment level". For the fourth consecutive month, demand for exports fell. The question is why the zloty has not weakened yet?

First of all, the zloty had a strong positive signal from abroad (details in the previous paragraphs). It is also possible that PMI slightly overestimates the scale of the slowdown, and the moods were lowered by the combination of negative factors in recent months (automotive industry, Italy, Brexit and US-China trade conflict). Therefore, PMI is in line with the expected strong weakening of the GDP growth pace but may be too pessimistic about the general economic situation in the domestic economy in the coming months. The zloty should maintain the last hours' growth in relation to the franc and the euro, even if the EUR/USD pair returns to Friday's closing levels.