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The data from the US are disastrous, but they were supposed to be even worse (Afternoon analysis 3.06.2020)

3 Jun 2020 17:05|Bartosz Grejner

Macroeconomic data from the USA were in line with positive market sentiment, as well as previously published good data from the eurozone or China with growth in the services sector in May. The zloty is slightly weaker, given the optimism in the market.

Drop in employment surprised

The afternoon's trade on the market continued in a similarly positive sentiment to the previous days. The slightly higher-than-expected PMI data from China and the eurozone for May were also joined by readings from the US. The PMI index for the services sector (according to ISM) rose to 45.4 pts, compared to 41.8 pts in April. This is 1 point above expectations, although still far from the February pre-pandemic 57.3 points.

ADP's employment data for May turned out to be clearly better than expected. The number of payrolls decreased by 2.76 million, although a much deeper decline (by 9 million) was expected. These data are still terrible, but much better than the April drop of 19.6 million, which may increase market optimism. This may also give indications as to what Friday's US labour market report will show, which may be slightly less dramatic than expected.

Optimism increases the demand for the euro and the franc

Incoming data confirm that the bottom of the recession caused by the virus pandemic was reached in April and, as the restrictions are gradually lifted, economic activity, although still at a weak level, will continue to grow. This is the leading thought, which currently has a positive impact on the market's sentiment, raising, among other things, the main market indexes, but also weakening the dollar and strengthening the euro.

The euro's quotations were clearly gaining, another day in a row. The EUR/USD exchange rate rose to about 1.1237, while last Monday we observed a level below 1.09. The EUR/CHF exchange rate rose for the first time since mid-January above 1.08, along with a drop in demand for so-called safe havens, including the franc or precious metals (such as gold, silver, platinum).

A slightly weaker day for the zloty

The Polish currency remains within a limited volatility range, although given the very optimistic sentiment for most of the day, a somewhat weaker condition of the zloty basket could be observed. Such market conditions most often favour the zloty, however, this afternoon we have seen slight losses.

A slightly greater depreciation was observed in relation to the euro: the EUR/PLN exchange rate rose from 4.37 in the morning to just over 4.41 in the afternoon. In the context of the last two weeks, however, this is a minimal loss and increased by a globally stronger euro. The calendar of significant events for the rest of the day is practically empty, so large changes in the zloty valuation should not occur.

However, an increase in volatility can be expected tomorrow around the publication of a statement and a press conference of the European Central Bank, where an increase in monetary stimulation is widely expected, so here should not come as a surprise. The comment by Christine Lagarde, President of the ECB, who has not painted an optimistic picture for the eurozone economies in her statements so far may be relevant. The negative overtones of her statement could potentially slightly worsen the sentiment in the broader market, weakening the zloty as a result.

3 Jun 2020 17:05|Bartosz Grejner

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

3 Jun 2020 13:16

China's service sector with the strongest growth in 10 years (Daily analysis 3.06.2020)

2 Jun 2020 12:31

Optimism in the broader market continues to increase (Daily analysis 2.06.2020)

1 Jun 2020 17:44

The sentiment is getting better, and the zloty is getting stronger (Afternoon analysis 1.06.2020)

1 Jun 2020 15:19

Chinese industry surprises (Daily analysis 1.06.2020)

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