Daily analysis 02.05.2016

, author:

Piotr Lonczak

The euro hit new highs. The common currency was supported by the economic data. In Poland, industry slowed down. The zloty was steady.

Solid economic reports support the euro. The common currency increased to the highest level against the dollar since mid-October 2015. Moreover, the euro gained against all its major pairs - the pound, the yen and the franc.

The major factor that supported the euro was the improvement of the economic reports. Last week, the GDP reading was better than the forecast. In the first quarter, the GDP growth stood at 1.6 percent on a yearly basis against the forecast of 1.4 percent. In addition, the labor market reports exceeded the forecast. The unemployment rate dropped to 10.2 percent from 10.4 percent in the preceding month.

Moreover, the PMI reports for the European economies signaled improvement. Data from Italy and Spain was better than expected. The German economy expanded at a stable pace. Only France missed the forecast. All in all, the broad index for the monetary union was higher than the forecast. As a result, positive tendencies which were signaled by the GDP and labor market data were confirmed.

Given the situation, the latest report on inflation is somewhat surprising. The HICP price index dropped 0.2 percent on a yearly basis. It was disappointing, as the forecast was for a 0.1 percent growth. In spite of solid expansion in the labor market, there is no price pressure. The situation puts the ECB in a difficult position. ECB President Mario Draghi suggested during his last press conference that the central bank is not considering new stimulus in the near future.

The ECB's stance and the solid reports supported the euro. In contrast, although the Federal Reserve is willing to tighten the monetary policy, it has recently shown a looser stance. This factor amplified the impact of the latest reports, which showed some deterioration in the US economy.

Zloty at low level

The PMI index for Poland showed a deterioration of business conditions in April. The gauge dropped from 53.8 to 51 - the strongest decline since November 2008. Moreover, it was well below the 53.5 level that was expected. In spite of a weaker than expected reading, the PMI index remained above the 50 level which separates expansion from contraction.

The report cited a slowdown in production, new orders and employment as causes. Although the employment level increased for the 33th month in a row, the pace of growth was the slowest since 2014. The production cost index dropped for 8th month in a row. However, the prices of finished goods increased. The data suggests that the economy may post a weaker quarter than was previously thought.

The zloty dropped against all its major pairs on Monday. However, the move was limited. Currently, the basis scenario for the zloty is to stabilize with a tendency to decline.

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 Sp. z o.o is prohibited.

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