Weak results of the US industry (Afternoon analysis 3.09.2019)

The US industrial ISM index falls below 50 points and reaches its worst result in over 3 years. Key hours for the British government and Brexit. The zloty benefits from a weaker dollar, but the growth potential of the zloty is still limited.

Although the market is dominated by information related to a trade war or Brexit, sometimes macroeconomic reports also take the lead. This is often the case when the readings are surprising. This was the case in the USA this afternoon.

US IMS index fails the expectations

None of the economists surveyed by Bloomberg expected such a weak reading of one of the most important US industry indexes - ISM. The index fell below 50, which separates the development from the contraction, and reached 49.1pts, the lowest level since January 2016.

Moreover, all the key sub-indexes - order, employment and production - fell below 50 points. What are US entrepreneurs afraid of? First of all, those are the consequences of a trade war and a potential recession. Some of them are also afraid of hard Brexit, according to statements published by ISM.

Data from the USA slightly weakened the dollar (the EUR/USD pair returned above the 1.0950 boundary). The Fed is more likely to be under pressure to cut interest rates by 50 basis points in September, especially if labour market data (Wednesday's publication - ADP - change in the number of employees, Thursday - jobless claims, Friday - Labor Department - change in the number of payrolls, wages and unemployment rate) were as weak as those disclosed today. However, it is still too early for the strong dollar to break down, as there are relatively few alternatives to the dollar.

Strong emotions in Great Britain. Zloty slightly stronger

Tremendous nervousness is likely to weigh on the pound in the next few hours. After the summer break, and a few days before the suspension of the parliament for five weeks, the House of Commons will vote to prevent the chaotic exit from the EU on October 31st.

If the opposition succeeds in pushing through this proposal, it is most likely that Prime Minister Boris Johnson will have to start the procedure for dissolution of parliament. In general, even if the opposition (together with about 25 Tory members) prevents a hard Brexit on October 31st, the sequence of later events (elections, the formation of the parliament and the next confrontational conservative administration in the event of a defeat of the labourists and liberals) may quickly put additional pressure on the pound. Key votes should start at around 10 p.m. CET time.

In Poland, the zloty strengthened slightly after very weak macroeconomic data from the USA (ISM below 50 points) and the chances of a deeper cut in interest rates by the Fed increased. However, market sentiment is weak. S&P 500 loses about 1% an hour after the start of trade. Therefore, the space to strengthen the Polish currency remains limited.