Weak data from eurozone and Poland (Daily analysis 16.10.2018)

Wages in the UK are rising faster than expected, but so is the number of unemployed. The pound appreciates. Macroeconomic data from both the eurozone and Poland fails to meet expectations, although changes in the case of the euro and the zloty are limited.

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

• 2:00 p.m.: Poland's currency account for August (estimates: -396 billion EUR).
• 2:30 p.m.: Retail sales in the USA in September (estimates: +0.7%, core index +0.4% m/m).

Sentiment in eurozone deteriorates

The lack of agreement on the Irish border between the British Government and the European Union is a burden on the pound. However, the market has received positive information about wages in the UK. The average salary (including bonuses) increased in August by 2.7% per year, by 0.1 percentage points above expectations, increasing at the fastest pace since February. The growth without bonuses looked more impressive: 3.1% per year is the fastest growth pace in 8 years.

This publication, however, was accompanied by worse than expected data on the number of unemployed, which also increased in August by 18.5 thousand, 14 thousand above the median of market expectations. It is also the fourth consecutive month for the number of unemployed, which may slightly reduce the positive impact of the data on wages. Ultimately, however, it may suggest somewhat higher inflationary pressures. Under normal circumstances, this would increase the probability of an earlier increase in interest rates, but the Bank of England's monetary policy also depends on the form of Brexit. However, if we do not see a significant deterioration in market sentiment, the British currency should remain above yesterday's close today.

The eurozone's data was much clearer. The surplus in international trade in August was 11.7 billion EUR (15.1 billion was expected), marking the lowest level since the beginning of 2017. Problems with, among others, the Italian budget, Brexit agreement, political turmoil in Germany are too much at once for financial institutions, therefore, the ZEW economic sentiment for the eurozone fell in October to its lowest level in 6 years (-19.4 points). The main currency pair, EUR/USD, fell from nearly 1.16 to about 1.156 in direct response to these publications. This was not yet a big change, remaining within the fluctuation range of the last few days. The pressure on the euro may increase slightly in the afternoon when US investors will become more active, especially when data on industrial production in the USA will exceed market expectations.

Macroeconomic data did not support the zloty either this morning. The average wage in the Polish enterprise sector in September increased by 6.7% compared to September of the previous year, by 0.4 percentage points below market consensus. Additionally, the employment growth pace in this sector decreased by 0.2 percentage points to 3.2%. The impact on the zloty's quotations was limited, also because the slowdown in both cases is expected and occurs from a relatively high level. Today the data on core inflation will still be available, although for the zloty the most important information will be the general market sentiment. Weak data from the eurozone and potential pressure on the euro may be a bad sign for the Polish currency. The zloty basket may weaken in the event of a global dollar appreciation against the euro, which may result in a return of the USD/PLN pair to around 3.75 and EUR/PLN above 4.30.