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Afternoon analysis 02.11.2016

, author:

Bartosz Grejner

Weak ADP data regarding changes in employment in the American non-agricultural sector have a relatively minor impact on the dollar. The WTI oil is going down to its level from before the agreement in Algiers from September. The zloty remains under pressure of weak industrial PMI data.

Increase in employment in non-agricultural sector is the lowest in one-and-a-half year

Today’s ADP data regarding employment in private sector indicated a 147k increase in October. This is the lowest monthly increase since January 2014. On the other hand, the data from September has been revised from 154k to 202k. This was the best reading since February.

In October, there was an increase in employment in services sector (165k). The situation was different in goods production sector (negative 18k). The largest decrease was in building sector (negative 11k). We could also observe a higher employment increase in larger companies. This can be explained by a lower impact of a worse global sentiment.

The largest increase in employment was observed in companies which hire more than 1000 employees (63k). The same index was at the level of 14k in companies that hire up to 19 employees. The ADP data from October may be a negative signal for the dollar. However, its impact may be limited due to the decision from the FOMC regarding interest rates. The EUR/USD has been near 1.11 since morning and its reaction to the ADP data was relatively minor.

Oil under supply pressure

Today, the American Energy Department published data regarding oil supply. This supply increased by 14.4 million barrels last week, which is the best result in thirty-four years. Moreover, oil production has been increasing for a third consecutive week. Last week it was larger by 18k barrels per day. There was also a large increase in oil import to 8.995 million barrels per day. This is the highest level since September 2012. This was a 29% growth in comparison to last week.

As a result, the WTI oil prices went down to the level of 44.99 USD and lost all its gains (approximately 7 USD) caused by the OPEC agreement from Algiers in September. This causes an additional pressure on OPEC countries to establish a specific production level in particular countries. If it’s low, this may wear-off the dollar. Due to information regarding oil supply, the EUR/USD went slightly above the 1.11 level.

Zloty continues to wear-off

The Polish currency remains weak. This is a result of the weakest in two years industrial PMI data, as well as slightly better PMI from the euro zone. Moreover, weak zloty is a result of low unemployment rate in Germany (6.0%) and positive PMI for building sector in the United Kingdom. A slightly larger global risk aversion (related to the American elections and oil prices) could increase pressure on the zloty as well.

This afternoon, the euro was at the level of 4.33 PLN. This was approximately 0.03 PLN more than this morning. The CHF/PLN growth to the level of 4.015 is also worth noting. This is its highest level since September 2nd. Today, the dollar was near 3.90. The USD/PLN will be under the influence of the FOMC decision today, as well as during the forthcoming days. If the announcement is hawkish (suggestion of rate hikes in December), the USD/PLN could go towards 3.95. In the opposite case, it’s more possible that it will go towards 3.87.

Tomorrow’s events

Today at 19.00 (7.00 PM), the FOMC will make a decision regarding the American interest rates. The market consensus assumes that they will remain unchanged. The probability of rate hikes by 25-35 base case points in November is relatively small (7.2%). Therefore, the announcement will be more significant. Last year, the Committee announced rate hikes on its meeting in November. If a similar scenario is fulfilled, the American currency could increase. However, its appreciation may be limited by uncertainty regarding the presidential elections. The EUR/USD would probably go below 1.10 and the USD/PLN would move towards 4.00. However, if there is no such information, this would cause a depreciation of the dollar and the EUR/USD would go towards 1.12.

At 13.00 (1.00 PM), the Bank of England (BoE) will announce its decision regarding interest rates, as well as the QE program. The market consensus assumes that both values will remain unchanged (0.25% and 435 billion pounds, respectively). The BoE publishes its minutes immediately. Investors will search for the clues regarding interest rates in the future.

In August, the BoE decreased interest rates to the level of 0.25% and increased the QE from 375 billion pounds to 435 billion pounds. Let’s also keep in mind that Mark Carney (the Bank of England chairman) announced in October that the BoE will tolerate will tolerate a potentially higher inflation (more than 2% inflation goal). In Carney’s opinion, lower interest rates and increased QE will have a limited impact on unemployment level, as well as will decrease the Brexit-related shock. This way the economy would adjust more properly. Therefore, we shouldn’t expect a suggestion of higher interest rate in the near future.

At 14.45 (2.45 PM), Markit will publish the final PMI data for the American services. The market consensus assumes the reading to remain at an unchanged level of 54.8, which would be the best result since November 2015. Fifteen minutes later, we will receive the ISM data for services from October. This data is more important in the USA, because it has a larger impact on the stock market, as well as on currencies.

The market consensus for this index is at the level of 56.0. After unexpected weakness of this index on August (51.4), it went significantly above the consensus (57.1 vs 53.0). Tomorrow’s quotations of the dollar will probably be relatively volatile. This is because of the decision from the FOMC, the uncertainty regarding the American elections and decreasing oil prices. If the ISM data for services is significantly different than expected, this may intensify the dollar’s fluctuations.


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.

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