Weak PMI data from Poland (Daily analysis 03.09.2018)

Tensions related to foreign trade may significantly increase. Surprisingly low PMI readings for Italy and the UK. The zloty remains stable, although Poland's industrial PMI was also significantly below the forecasts. The EUR/PLN remains within the 4.30 range.

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

• A lack of macro data may noticeably impact the analyzed currency pairs.

Weak data

Investors are still waiting for information on foreign trade. Most likely this week it will be decided whether the US will introduce 25% customs duties on yearly imports of 200 billion USD from China. It would be a symbolic transition from a trade conflict to a customs war between Washington and Beijing.

Apart from the Chinese issue, there is no trade agreement with Canada. However, in the case of relations with the US's northern neighbour, it is highly probable that an agreement will be reached. On the other hand, the economic situation in the weaker economies of the Union and in the United Kingdom is less optimistic.

PMI for Italian industry fell to 50.1 points, almost the line dividing growth from decline. According to the IHS Markit survey, the overall index was negatively affected by a drop in new orders for the first time in two years and a slight decrease in production, which at the same time ended the 43-month expansion period.

Export orders grew the least in 68 months, and logistics managers' expectations for the next 12 months were the lowest since May 2013. For many months now, as we have pointed out, the peculiar coalition in Italy and the lack of reforms resulting in very low potential economic growth (probably around 1%) have made Italy one of the weakest links in the eurozone.

To add more to Italy's problems, Fitch downgraded the rating outlook for this Apennine state. The creditworthiness is currently assessed at BBB with a negative outlook. It is two points above the rubbish level. The debt path itself has not deteriorated markedly in the coming years, but in 2027 the debt to GDP rate will more or less remain at a similar level as today (130%), while previously it was expected to fall to 123.4%. There was no clear negative reaction in the debt market, where investors are rather waiting for the clear fiscal plans of the current administration.

The British PMI also does not seem to be very positive. The industry index measured by Markit IHS and CIPS fell to 52.8 points, its lowest reading in 25 months (just after the 2016 Brexit vote). The increase in production and new orders slowed down, and there was also the first drop in new orders for export in over two years. The labour market also appeared weak, where the number of new jobs created dropped to "close to stagnation" levels. In his comment to the data, Rob Dobson, IHS Markit's director, wrote that taking into account the relationship between ONS and PMI data, the sector is not growing and will not contribute positively to the economy in the Q3. In addition to the PMI, it must also be said that there is still chaos in the Tory camp, which, instead of focusing on negotiations with the Union, is arguing within the party in the context of future relations with the Community. Both messages are not positive for the sterling.

Zloty remains stable despite weak PMI

The zloty in the afternoon was just below the 4.30 limit. The Polish currency was not hurt even by the reading of the PMI, which was much weaker than the consensus (53 points) and amounted to only 51.4 points, the lowest in 22 months. The previous reading was not great and its sudden drop suggested rather a one-off event. The deepening of this trend is, therefore, starting to look quite worrying.

The worst results are reported for new export orders, which fell the fastest from 2014. In August, the growth was recorded in sub-indexes of production or employment, but it was the lowest in 22 and 9 months respectively. The expectations of entrepreneurs regarding the situation within the next year was the second worst in 21 months. There are many signs that the slowdown in the eurozone is beginning to be noticed in Poland, which will result in a significant slowdown in GDP growth as early as in the Q4 of 2018.