Daily analysis 02.09.2016

, author:

Marcin Lipka

ISM reading from the American industry has disturbed the anticipated payrolls. Crucial elements from the Labor Department report. The zloty continues to wear-off. However, decline pressure on the PLN should be starting to exhaust for the time being.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: Change in the amount of workplaces in the USA (estimations: positive 180k).
  • 14.30: Unemployment rate in the USA (estimations: 4.8%).
  • 14.30: Change in average hourly wage (positive 2.5% y/y; positive 0.2% m/m).
  • 14.30: Average length of working week (34.5 h).

ISM before payrolls

Anticipation for the data from the American labor market has been slightly disturbed by publication of the ISM index yesterday. The basic accelerating index of the American industry went below 50 points. This caused a clear wear-off of the dollar, as well as the EUR/USD to exceed the level of 1.12.

The particular ISM components don't look positive as well. New orders, production and employment are all below the level of 50 points that separates progress from regress. On the other hand, one month's reading doesn't have to mean that the American industry has actually began to shrink, especially considering that the previous data was relatively positive.

It is also worth taking note that only 10% of working Americans are employed in the American industry. Moreover, it generates approximately 30% of the GDP. The ADP data has indicated a reduction of workplaces in industry. This has been confirmed by the ISM data from yesterday.

On one hand, the industrial ISM is important as an accelerating index. On the other, it's almost neutral for employment in the short-term. However, the services sector ISM will be much more important. Its publication is planned for next Tueasday.

Labor Department

According to economists' consensus presented by Bloomberg agency, the American currency should create 180k new workplaces in non-agricultural sector in August. This is approximately the same result as the one from the ADP data that was published on Wednesday.

The market also expects the unemployment rate to decline from 4.9% to 4.8%. However, it's possible that payrolls will be the most important publication for the market, especially if they remain at the level of 180k (+/- 30k).

It's also worth noting that expectations before today's publication from the Labor Department are quite high. Theoretically, the report needs to be positive enough to increase probability of monetary tightening by the FOMC in September, as well as to strenghten the American currency.

This may be difficult, not only due to a weak ISM reading from yesterday, but also because the Tuesday data from services sector might not be as positive as expected. Moreover, if every component from the Labor Department is better than estimated, the question whether the Fed will decide to raise interest rates in September, would appear relatively quickly.

As a result, the readings would have to be really positive, in order to cause a significant appreciation of the USD. However, it the data is near the market expectations, the dollar would begin to lose value. If the data is significantly worse than the consensus (payrolls below 150k and an increase in salaries lower than 2.5% y/y), we may even expect the EUR/USD would return to 1.1300.


The EUR/PLN going above the 4.38 level today, seems to be too pessimistic behavior of the zloty. The perspective of rate hikes in the USA, as well as the danger of rating's downgrade by Moody's are of course negative for the Polish currency. However, such a significant wear-off of the PLN before these matters actually happening, is probably exaggerated.

The PLN/HUF also indicates that the zloty is only 2% above its three-year minimum against the Hungarian currency. Therefore, if the American data doesn't cause a clearer appreciation of the dollar, we may expect that the zloty would slightly regain strength. In the case of a weak publication from the Labor Department (more details in previous paragraphs), it's possible that the EUR/PLN would go to 4.35 and the USD/PLN to 3.85-87.

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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