Stable zloty (Afternoon analysis 11.09.2018)

Sentiment worsening on the global market slightly strengthens the dollar and depreciates main market indexes in Europe. However, the zloty remains unchanged.

Dollar stronger, but changes are minor

Fears of an escalation of the trade war dominated the market today. The main stock indexes in Europe, as well as futures contracts for their counterparts in the USA, clearly lost value. Greater risk aversion somewhat strengthened the dollar. The EUR/USD exchange rate was ranged from about 1.156 to 1.164, and around 3:00 p.m. was below 1.16 p.m.

The market still awaits the White House announcement on tariffs. There is widespread speculation about their imposition on imports of Chinese goods worth 200 billion USD. Whether it will be an immediate one-off amount or will be introduced in tranches - it is not yet a foregone conclusion. Uncertainty in this context means that we can observe significant fluctuations in the market, and the imposition of duties on the entire amount at once may significantly strengthen the dollar and worsen sentiment in the share market and currencies of emerging countries.

The upcoming elections to the US Congress should also be taken into account. President Donald Trump, by imposing additional tariffs on China, may further aggravate sentiment in the market and trigger a wave of cuts on Wall Street. Meanwhile, the main US market indexes broke growth records during Donald Trump's presidency. The US President has often reminded us of this fact, mentioning the greatest achievements. Therefore, Trump is probably holding back on introducing drastic measures not to diminish the chances of Republicans in the upcoming elections. However, the information from both the US and China does not indicate an improvement in relations and a move towards an agreement in the near future, although this cannot be ruled out so completely.

The zloty reacts to changes in the main currency pair, i.e. EUR/USD, they are de facto not large, and the zloty remains relatively stable. Today, the EUR/PLN exchange rate oscillated between 4.30 - 4.31 and USD/PLN between 3.695 and 3.727. There are no significant macroeconomic publications planned for the following hours, hence the zloty will be mostly influenced by events across the ocean. The lack of significant changes in sentiment on the share market in the US, as well as on the dollar, should support the zloty. Moreover, the lack of a statement from the USA regarding customs duties may be received positively in the evening, which could support the zloty.

Tomorrow's preview

At 11:00 a.m., Eurostat will publish data on industrial production in the eurozone for July. The median of market expectations indicates a decrease in the growth rate to 1.0%t per year (from 2.5 % in June), although to a large extent this is dictated by the high base from last year (when the production rate increased from 2.8% to 3.6%). Currently, we are still observing a relatively weak condition of the dollar and a slightly better euro. If industrial production data clearly exceeds market expectations (and is close to 2%), the euro may receive additional support.

At 2:30 p.m., the Bureau of Labour Statistics (BLS) in the USA will present data on US producer inflation (PPI) in August. It is rather a secondary indicator as regards its impact on the dollar quotations. The market consensus assumes that the more important core index (excluding energy and food prices) will remain unchanged at 2.7% year-on-year. This is still nearly 6-year highs in June (2.8%) and a reading at or above this level may confirm positive inflation trends in the US economy and slightly strengthen the dollar.