The waiting day (Daily analysis 11.05.2018)

After the increased variability in the first days of the week, Friday's session can be relatively calm. The market continues to ignore reports from Italy. The zloty becomes stable and the euro costs around 4.25-4.26 PLN. Risks to the national currency persist.

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

• 3:15 p.m.: Mario Draghi's press conference in Florence, the Head of ECB.

Unstable stabilisation

Yesterday, we drew attention to a series of important data for the pound and the dollar. In the case of the UK currency, the statement and the macroeconomic forecasts were rather dovish. The downward revision of GDP estimates for this year and the lack of clear signals for a tightening of monetary policy are postponing the expectations of interest rate increases for the end of this year.

On the other hand, Mark Carney's press conference, the President of BoE, was different than expected. He suggested that the bank was not withdrawing from a more restrictive monetary policy (3 increases over the next 3 years) and that GDP data for the Q1 was significantly distorted by weather conditions. As a result, it can be stated that the overall statement was dovish, but the President's words somewhat reduced this. The pound in relation to the euro is about 0.7% weaker compared to Thursday's opening.

As regards the US inflation, its core components clearly failed. On a monthly basis, price decreases returned in the case of new cars and deepened in the context of used vehicles. Lower prices were also recorded in the context of medical equipment in April. The cost of transport services has also fallen, although this was mainly due to earlier Easter trips this year, which were not taken into account in the seasonal data adjustments. Health care services are also growing slowly, which may confirm lower pressure on wage increases. Yesterday's readings, therefore do not provide a basis for accelerating the tightening up of monetary policy. On the other hand, however, the aforementioned readings are not an argument to slow down the process either. It still seems that the quarterly increase in interest rates should continue at least until the middle of next year. The result should, therefore, continue to support the dollar.

Apart from the events in the Islands and the USA, it is worth remembering the general nervous situation in emerging markets, the growing geopolitical risks, as well as the expensive oil, which can be even more expensive in local currencies than it was at the time when the dollar highs in 2008, 2011 or 2012 were reached.

It is also important not to forget the situation in Italy. The lack of market reaction to a possible coalition of populist parties (the Five Stars Movement and the Northern League) is probably a result of the belief that both parties are withdrawing from the most expensive ideas (guaranteed income, changes in the pension system, additional cash for households). The calm among investors can also be explained by the fact that the ECB continues to buy Eurozone's government bonds (including Italian bonds). In general, however, a positive attitude towards Italy can be very deceptive. The winning parties may be forced to deliver a large part of their promises by the electorate, and the ECB is on a path of withdrawing from the purchase of government bonds. When the new expenditure will have to be financed by Rome through additional debt issuance, one can expect clear increases in yields and in risk aversion for the whole euro area. This could soon put pressure on the single area currency.

Stable zloty but risks are still on the horizon

The EUR/PLN pair fluctuates between 4.25 and 4.26 in the morning. It can be concluded that taking into account the external and internal situation, this level is close to the core one. However, the external situation may deteriorate quite rapidly (geopolitics, oil, Italy, capital outflow from emerging markets). In such a scenario, the domestic currency could weaken rapidly, especially as the MPC is very far from rising interest rates.

In the case of the following hours, the situation should be relatively calm. Mario Draghi's conference in Florence, will probably not cause greater volatility. Therefore, investors will wait for the next week and for reports from a broad market.