Weak overview of industry in Germany and France (Daily analysis 7.02.2020)

07.02.2020 11:37|Bartosz Grejner

The euro loses in relation to the main currencies after the publication of much worse-than-expected industrial production data for December. The EUR/USD exchange rate is the lowest since the second week of January. Market attention is focused on the afternoon US labour market report. The zloty again weakens slightly: EUR/PLN above 4.26.

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.: Change in January's employment in the non-farm sector in the USA (estimates: +165k).
  • 2:30 p.m.: Changes in the average hourly wage in the USA in January (estimates: +3.0% year-on-year).

Two leading economies, two huge disappointments

A disastrous end of the year is recorded in the largest economies of the eurozone. Yesterday's machinery order data in Germany in December could have suggested that the last month of 2019 was not the best for the industry. On the other hand, the data with industrial production is not always perfectly correlated. This time, however, they were.

According to today's Destatis publication, industrial production in Germany in December fell by 3.5% on a monthly basis, much more strongly than the expected 0.2%. Although production data fluctuate widely, the reduction in production has been at its fastest pace since January 2009, practically since the previous financial crisis. All industry components recorded a decline, with a significant reduction in the production of capital goods by 3.5%, and consumer goods by 2.0%.

Taking into account the last few years, German industrial production (without the seasonality and volatility of the calendar) was at the level recorded in August 2015. The published international trade data did not improve the negative picture: exports grew by only 0.1% (0.5% was expected), and imports fell by 0.7%. (expected to grow by 0.3%), signalling fears of a decrease in foreign trade activity, on which the German economy is strongly dependent.

Data from the French industrial sector, also from December, turned out to be clearly below expectations. Industrial production fell by 2.8%, compared to expected growth of 0.3%. It dropped the most since January 2018, and on top of that, the November data were revised downward by 0.3 percentage points.

Today's macro data, which illustrate the continuing weakness in Europe's largest economies, put supply pressure on the euro. Although the scale of changes in two hours after the start of trading on European markets was not large and amounted to about 0.2% in relation to the dollar, the EUR/USD quotations set further lows, falling below 1.0960, i.e. to the lowest level since the second week of October last year.

The US labour market weakens the zloty?

Changes in the broader market were relatively limited during the early trading hours. Today, attention is focused primarily on the report on the US labour market, at the time of its publication, we can expect a strong increase in the dollar fluctuations. Today's much worse-than-expected industrial data from Germany and France may be alarming. This is because they show a continuing negative trend even before the outbreak of the coronavirus. Meanwhile, the Chinese virus will have a certain impact on the global economy due to a drop in activity in China, reduced demand, etc.

Sentiment in the market remains relatively positive. It is supported by the mild monetary policy of central banks and, among other things, yesterday's information from the Chinese Ministry of Finance about cutting customs duties on imports of goods from the USA to fight the economic slowdown. These relatively good sentiments also support the zloty, probably protecting it from greater depreciation, given the globally strong dollar. Today, the EUR/PLN exchange rate rose above 4.26 and the USD/PLN exchange rate above 3.89, and the deterioration of global sentiment in the global market may further increase the scale of the zloty's depreciation. This will be all the more likely when data from the US labour market (employment and average wages) confirm a better condition of the US economy than expected by economists.


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

6 Feb 2020 17:22

Dollar continues its strong appreciation (Afternoon analysis 6.02.2020)

6 Feb 2020 12:30

Markets break records, powers reduce duties, currencies are stable (Daily analysis 6.02.2020)

5 Feb 2020 16:30

Zloty strongly appreciates and again better data from the USA (Afternoon analysis 5.02.2020)

5 Feb 2020 12:58

Better sentiment supports the zloty (Daily analysis 5.02.2020)

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