Waiting for data (Daily analysis 06.04.2018)

Another part of the trade conflict with limited impact on currencies. Readings from the United States may surprise. The zloty remains stable. The EUR/PLN pair remains close to the 4.20 level.

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

• 2:30 p.m.: Data from the US Department of Labour for March. New payrolls in the non-farm sector (estimates: 185k). Unemployment rate (estimated at 4.0%). Change in average hourly wages (estimates: 2.7 year-on-year).

Confusion

Yesterday, we drew attention to interviews with Larry Kudlow on Fox Business and Fox News which role was to reassure investors in the context of the trade conflict between the United States and China. However, yesterday's comments were covered up by President Trump's new economic advisor announcements on new customs duties.

The White House suggests that the Chinese response to the US duties is unjustified. Therefore, it recommends examining a further increase in trade restrictions on goods imported from China worth another USD 100 billion. In total, as much as 150 billion of 500 billion USD in imports could be threatened by additional duties.

Currently, these announcements do not show a similar reaction from Beijing. The market may also wonder whether the latter proposal from Washington is a realistic plan or whether President Trump's individual negotiating strategy, as suggested by Kudlow on Tuesday, is an individual negotiation strategy.

After the next phase of the trade dispute started, futures contracts for S&P 500 fell by 1%. However, if the market realises that the probability of duties actually being imposed is low, the spot market session does not have to be particularly nervous. The impact of this information on the currency market, as in the last few days, was limited. The Turkish lira has been the most sensitive to recently external factors.

Labour market in the limelight

If there are no important trade reports by 2:30 p.m., there is a chance that investors will focus on macroeconomic data, especially on the readings from the US labour market and the change in average wages.

The market consensus assumes that wages increased by 2.7-2.8% year-on-year in March. Exceeding this range by 0.1 points would be the highest reading in less than nine years and would probably increase the discussion on accelerating inflation towards the target.

If, in addition, higher-than-expected wages were combined with a deeper fall in the unemployment rate (e.g. to 3.9%), then most of the market would begin to believe in the prospect of three more interest rate increases this year. This could support the dollar and increase yields on government bonds, even taking into account concerns about the fate of trade between the US and China.

In addition, if higher than expected wages were combined with a greater decline in the unemployment rate (e.g. to 3.9%), then most of the market would begin to believe in the prospect of three more interest rate increases this year. This could support the dollar and increase yields on government bonds, even taking into account concerns about the fate of trade between the US and China.

Mixed, unclear scenarios are unlikely to cause major market movements. Investors will then assess whether reports related to foreign trade continue to play the main role.

Zloty remains strong

The zloty, as well as many other emerging market currencies, is not harmed by reports of a trade conflict between Beijing and Washington. However, the Polish currency may be under pressure, if a strong pro-inflation signal from the US labour market occurs (long-term highs in wages growth and unemployment below 4.0%). In such a scenario, the dollar could even test the 3.45 PLN limit.

On the other hand, if the reading from the USA is not positive, both the dollar (details in the previous paragraphs) and the zloty will probably remain close to current levels. Therefore, the core scenario for EUR/PLN is still stabilization within a relatively narrow range of fluctuations.