Afternoon analysis 04.11.2016

The report from the American Labor Department was not surprising and has a limited impact on the dollar. Due to the global sentiment and the stronger pound, as well as the franc, the zloty is losing value.

Data from American labor market is neutral for the dollar

Today’s report from the American Labor Department for October showed that unemployment is at the level of 4.9%, which was consistent with the market expectations. Employment in the non-agricultural sector increased by 161k, which was slightly below the 176k consensus. However, the data for August, as well as for September, was revised up to 176k (from 167k) and 191k (from 156k), respectively. Employment increased by 44k more in August and September than the previous reports indicated. It is worth noting an increase in health care (by 31k), business and professional services (by 43k) and financial services (by 14k) in October.

A 9k and 1.1k decrease was quoted in processing and retail sales, respectively. The latter index was quoting significant growths in the past months (1.6.8k in August and 22.2k in September). In October, the participation index decreased by 0.1 percentage points (62.8%). This most likely impacted a slightly lower unemployment rate.

On the other hand, the average hourly wage in the USA was better than expected (positive 0.4% vs positive 0.3%) and is at the level of 25.92 dollars. Moreover, September’s reading was revised from 0.2% to 0.3%. The average hourly wage increased 2.8% in year on year interpretation, which is the best result since June 2009. This data is positive for the dollar, because it may indicate a slightly higher inflation, which may be an argument in favor of rate hikes in December. However, the data from the Labor Department had a limited impact on the dollar. After initial fluctuations, the EUR/USD returned near the 1.11 level.

Oil is below 44 dollars per barrel

Today, Reuters wrote that according to the OPEC sources, Saudi Arabia suggested an increase in its oil production at the previous OPEC experts meeting, if Iran will not participate in the planned production limit. This caused the WTI oil to go below 44 dollars per barrel, which was its lowest level since September 20th. This way, the entire growth caused by the initial agreement in Algiers from September has been withdrawn. Shortly before publication of this commentary, Bloomberg announced that OPEC General Secretary, Mohammed Barkindo, denied that the Cartel suggested an increase in production during the meeting in Vienna. As a result, oil prices increased from 43.60 dollars to approximately 44.30 dollars.

A depreciation trend of oil prices has been observed since October 20th. At that time, the price of oil barrels began to decline from over 52 dollars as a reaction to the problems related to the agreement, as well as to increasing oil supplies in the USA. Not only is such a low oil price a large problem for OPEC, but also for the dollar due to lower global inflation expectations.

Zloty is slightly weaker

The zloty remains weak. The global strengthening of the pound (more than 1.25 on the GBP/USD) caused the pound to go to the range of 4.86 – 4.87 PLN. The value of the franc increased as well. This was most likely related to increased risk aversion and the search for safe assets by investors (the yen has been gaining value since the end of October). Due to this, the franc reached the level of 4.01 PLN today, which was the upper level of the fluctuation range that has been observed over the past two weeks.

The report from the American Labor Department didn’t cause large changes in the dollar. The USD/PLN remained stable near the 3.89 level. No larger chances were observed on the EUR/PLN as well. The euro is at the level of 4.32.

Monday’s events

At 9.30 AM we will know the housing price index by Halifax for October. This index reached the level of 10.1% y/y in April, which was its highest result since July 2014. This was also near the level from 2007. Since then, this index has been gradually decreasing (5.8% y/y in September). This is one of the leading indexes which allows the estimation of the British housing market condition. Due to large fluctuations of the British currency, which are mainly caused by anxieties regarding Brexit, a further wear-off of the mentioned index may be negative for the pound.

At 10.30 AM, Sentix will publish the investor trust index for November. In June, this index was at the level of 9.9. However, investor trust decreased to 1.7 in July. Over the following months, this index has been rebuilding its value to the level of 8.5. The market consensus estimates that it will continue to increase to the level of 9.3. The recent positive PMI, GfK and Ifo data should support investor trust for the forthcoming month.

At 10.30 AM, Eurostat will publish the data regarding retail sales in the euro zone for September. The market consensus assumes that this index will grow by 1.6% in comparison to the 0.6% growth in August (vs 1.5% of the consensus). August’s reading was the worst in the past two years. We have been observing a decrease in the retail sales index since February 2015 (3.2%). This is proof of a decrease in consumer expenses, which has an impact on inflation expectations. If the reading is worse than expected, it could decrease them slightly and wear-off the euro.

Next week’s main event is absolutely the American presidential elections on Tuesday, November 8th. Surveys show a minor difference between the support for each candidate. Therefore, the market finds it difficult to estimate the eventual result. This should result in a strong reaction on the elections result. This uncertainty has been slightly increasing the risk aversion, which may be negative for the emerging market currencies (including the zloty). Therefore, we should expect a relatively large volatility on Monday, as well as on Tuesday.