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Afternoon analysis 04.03.2016

, author:

Piotr Lonczak

High volatility after the data of the US labor market. Drop in wages was the largest disappointment. The zloty gained against its major pairs.

The dollar dropped after US labor market data. However, the release was unclear. On the one hand, employment in non-farming sector increased 242k in February. The reading was better than the 195k forecast. Last month, companies added 172k (revised from 151k). The unemployment rate stood at 4.9 percent - the lowest level in eight years.

On the other hand, there was a disappointing result of wage growth. On a monthly basis, wages dropped 0.1 percent against the 0.2 percent forecast. In the prior month, wages increased 0.4 percent. Last time wages dropped was in December 2014. On a yearly basis, wages increased 2.2 percent against the 2.5 percent forecast.

The overall assessment of the US labor market stays positive. Rising employment and low unemployment rates show an ongoing expansion. However, the wages growth is not satisfying. Without significant payment increases, consumption will not be enough to support inflation. Combined with the commodity market situation and anxiety concerning the global economy, the probability that the Federal Reserve will meet its inflation goal, has declined. Moreover, the Fed is currently more susceptible to the inflation data than the labor reports.

The market reaction was unclear. The dollar gained just after the report was released. Later, the US currency posted losses against the euro.

Stronger risk appetite

The easing of anxieties concerning the global economy have recently supported the commodity markets. The copper price increased to the highest level since November 2015. Oil prices also gained. They were supported by speculations that the oil producing countries may reach an agreement to freeze the output.

The latest news concerning China was also positive. Recently, the People's Bank of China said it may change its stance to be more dovish. The Bloomberg agency said that Prime Minister Li Keqiang will announce the shift during his speech on weekend. More support to the economy from the Chinese government may support the general market sentiment. It will support the commodity markets, and as a result, the currencies of commodity exporting countries.

Additional factors that may support the positive sentiment are the expectations that the European Central Bank will add to the stimulus. On its next weekly meeting, the Frankfurt-based institution may lower deposit rate or increase the level of asset purchase. Today, the MNI agency cited unofficial sources in the ECB that said there is no consensus in the Governing Council on whether to use other tools than lowering deposit rates. Moreover, the monetary authorities are afraid they will miss market expectations. That would lead to a repetition of the December scenario, when the ECB's meeting resulted in a strong increase of the euro, due to investors disappointment.

Stronger zloty

The latest comments from the MPC limit the probability of interest rate cuts. Yesterday, Kamil Zubelewicz from the MPC clearly represented a hawkish stance. His comments supported the consensus in the MPC that there is currently no need to cut interest rates. This should support the Polish currency in the longer term.

On Friday, the zloty gained against its all major pairs. The Polish currency exploited positive sentiment in the broad market. If the ECB meets the market expectations and the Fed lowers the pace of interest rate hikes, the zloty may gain further.


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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