Weak data from eurozone (Daily analysis 14.12.2018)

14.12.2018 11:56|Bartosz Grejner

The euro depreciates after worse than expected PMI data. The EUR/USD exchange rate drops below 1.13. The zloty is slightly weaker, especially to the dollar and the franc, although the changes are limited.

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

  • 2:30 p.m.: Retail sales in the USA in November (estimates for core index: +0.2% m/m).
  • 3:15 p.m.: Industrial production in the USA in November (estimates: +0.3% m/m).

Eurozone close to stagnation

Today, IHS Markit published preliminary December PMI data for the eurozone. Activity in industry and services failed the market expectations. Data for Germany and France was published even before the data for the whole common currency area. The aggregate index of both German sectors fell to its lowest level in 4 years (52.2 points). Indexes for the French manufacturing and services sectors were lower than 50 points, which meant a decrease in activity.

Weak data from Europe's two largest economies had a clear impact on data for the eurozone as a whole. The indexes for both sectors were 51.4 points, while the aggregate was 0.1 points lower (52.7 points in November). The increase in business activity in both sectors was the lowest in 4 years. Although the protests in France had a strong impact on December's data (especially for the services sector), this was only one of the weak data components. Slowing economic growth pace, lower inflationary pressures and subdued demand for vehicles led to the fact that the eurozone's economy is only 1.4 points away from a state of activity decline.

Although PMI indexes are based on surveys of logistics managers, they are subject to relatively large fluctuations and take into account frequently changing market sentiment, they had a significant impact on the euro today. The common currency has significantly weakened in relation to the dollar. For the first time in more than two weeks, the EUR/USD quotations fell below 1.13 for the first time.

Wake up call for Theresa May

The euro was not the only currency that was under pressure today. This should not come as a surprise, but significant fluctuations are once again recorded in the pound. Prime Minister Theresa May received the wake-up call by European leaders, who intensified the message a little. Jean-Claude Juncker, President of the European Commission, said that he did not see the results of the British Prime Minister's struggle to get support from British parliamentarians. May also failed to obtain additional assurances from EU leaders regarding mainly the Irish border, which could increase her chances of pushing through the plan in the British Parliament.

On 19th December the European Commission will also present a plan in the case of a Brexit without an agreement. Although this is nothing unusual, in combination with the stricter position of the European Commission and an even lower chance of pushing through the Brexit plan, it may cause additional pressure.

Zloty waits for support

The globally weaker pound did not translate into a fall in GBP/PLN quotations today, which rose to nearly 4.80. This is primarily due to the euro appreciation and the simultaneous strengthening of the dollar. Weak sentiment on the equity market did not help either. The main market indexes in Europe lost even more than 1.5% before midday. Increased risk aversion led to an increase in the USD/PLN exchange rate above 3.81 (for at most two weeks) today and CHF/PLN to 3.82. However, these were not significant changes (approx. 0.3-0.4%), and they resulted primarily from external factors. On the other hand, the EUR/PLN quotations oscillated around 4.30 today, close to yesterday's closing level.

Small support for the zloty may be provided by November inflation data from the Polish economy if it turns out to be slightly better than the initial estimates by 0.1 percentage points, and the final reading amounts to 1.3% y/y. However, this is still a relatively low level (in October inflation amounted to 1.8%), and practically nothing changes in the context of the Monetary Policy Council's approach to interest rates. For the zloty, the quotations of the main currency pair and sentiment on the equity market in the afternoon and evening (when American investors will be more active) will be crucial today. In the afternoon we will find out more about data from the US economy, which may further strengthen the dollar. Its further potential global appreciation could increase the pressure on the USD/PLN and the CHF/PLN exchange rates.


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See also:

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Great Britain and France in the limelight (Daily analysis 11.12.2018)

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Pound's depreciation (Afternoon analysis 10.12.2018)

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