The income of the Americans has been raising the fastest since the war (Afternoon analysis 29.05.2020)

Friday was marked by a weaker dollar and stronger currencies, among others, of Scandinavian and emerging countries. Data for April show that federal aid in the USA has contributed to the largest increase in private income in history.

Positive sentiment is maintained

The quotations on Friday were carried out in a relatively positive sentiment related to the opening of the economies. The still weaker dollar gives more room to other currencies that benefit from these strong sentiments. The Scandinavian currencies were appreciating about 0.7-1.2% in relation to the dollar, continuing a trend that has been initiated at least since the beginning of the week.

The current market reaction to macroeconomic data is very limited, with the focus on the positive fact of increasing activity in the economies. However, interesting data - both from the point of view of the impact of the pandemic and the state's actions - were provided by the Bureau of Economic Analysis (BEA). They concerned the income and spending of Americans in April.

The sharpest decline and growth since World War II

Readings on expenditure are important because they reflect consumption behaviour well, especially at a time when we are trying to estimate the impact of the imposed restrictions and the recovery path of GDP. It was known that the data would be disastrous: a 12.8% drop on a monthly scale was expected. The decline turned out to be even deeper, reaching 13.6% and being the deepest ever.

Lower than expected consumption in April means that the starting point for the economy is likely to be lower, which could potentially mean a slightly longer return period. More interestingly, however, the private income of Americans increased by as much as 10.5% in April alone (expected to fall by 5.9%). This is the highest increase since World War II, and the last month, when similar increases were observed, was September 1947, when incomes increased by 7.9%.

Increase in income in April is the result of aid packages on an unprecedented scale, combined with coordinated fiscal and monetary policies. It has significantly reduced the financial burden on households, effectively shifting part of their debt to the state. Corporate savings, measured as a percentage of their income, rose to 33% in April.

This, of course, is the highest level in history and the record from May 1975 was broken almost twice (17%). To have an idea of how extreme the stimulation measures we had to deal with in the US, one has to look at the average percentage of savings in the months before the pandemic: from September 2019 to January 2020, they ranged between 7.8 and 7.9%. However, the effects of these aid measures are probably a concern for another time (that is, probably after the US elections).

Sentiment helps the zloty, but that can change quickly

In the currency market this week, the trend was very clear and stable: a higher risk appetite, a weaker dollar and a stronger euro, a positive scenario for emerging countries' currencies. The market might already largely wait for next week, which could provide much stronger impulses. The expected increase in monetary stimulation by the European Central Bank and the report on the US labour market may slightly modify the valuation of the main currencies and, with a high probability, increase the volatility of the broader market.

The Polish currency continues to be stable. The NBP's decision to cut interest rates did not harm it so far, we have not even observed significant fluctuations. However, this may change next week. The EUR/PLN exchange rate fluctuates around 4.45, and the USD/PLN pair oscillates around 4.00. The speech of US President Donald Trump, who is to announce how the White House is going to address the so-called China issue, may provide a potential increase in the fluctuations among their rates. The market is not yet responding to the growing geopolitical tension, but its further escalation with a potential Chinese response at the weekend may mean, among other things, a slightly weaker zloty at the beginning of next week.