The first day of quotation during the new week was in somewhat "more cautious" moods. Increased risk aversion in the morning manifested itself in the drops in the main European market indexes and the appreciation of the US currency.
Activity in China below expectations
The dollar index according to Bloomberg (which also includes its relation to emerging countries' currencies) rose slightly above 1220 pts. today, to its highest level since the first day of June. In turn, the main currency pair, i.e. EUR/USD, fell to around 1.1226 in the morning, the lowest level for the past 11 days. It seems that today's deterioration in sentiment is not fundamental. Rather, it is a response to the weakness of the dollar from the past few weeks (the EUR/USD exchange rate below 1.09 was still observed in the last days of May).
This more cautious approach by market participants may also have been, to a certain extent, supported by macroeconomic data from China for May. The Chinese economy, although specific, is a kind of 'case study' of the country's exit from the pandemic period (it is a few weeks before the rest of the world).
The readings for May did not come as a positive surprise. Although industrial production increased by 4.4% per year, it was the only growth recorded, and even it was below expectations (expected to grow by 5%). Retail sales, in turn, decreased by 2.8%, i.e. by 0.5% more than the economic consensus.
A clue as to what can happen in Europe
This underlines the problem that most economies will face. In addition to increasing the execution of overdue orders, it will be much easier for countries to stimulate the supply side than the demand side. Above all, the return to pre-pandemic levels will depend on consumer demand.
Data on demand declared by consumers, e.g. in the USA or European countries, will be crucial for the sentiment on the financial market. And if we look at recent weeks, optimism supported by stimulation of central banks still dominates. If the May data from China were to be some indication of what is going to happen in Europe, the market may be more and more cautious about the idea of recovery, especially as the rest of the year is covered by events with a high level of uncertainty. These include the US elections and negotiations of the UK trade agreement with the EU.
In the context of today's slightly weaker sentiment in the broader market and the dollar appreciating, the zloty was in good condition compared to other currencies. Around midday, next to the Indian rupee, it was the strongest of the emerging countries' currencies in relation to, among others, the dollar and the euro. The EUR/PLN quotations fell to approx. 4.43-4.44, while the USD/PLN was approx. 3.94.
These are still limited changes. Slightly larger changes, especially in the dollar, may appear on Tuesday and Wednesday when Jerome Powell, the Chair of the Federal Reserve, will appear before the US Congress. At the last press conference following the FOMC meeting, Powell painted a rather bleak, post-pandemic picture of the economy and its difficult return to pre-virus levels. Most likely, his statements before Congress will have a similar effect, potentially undermining market sentiment and weakening the zloty as a result.