Daily analysis 03.06.2016

, author:

Marcin Lipka

The market's reaction on information from the ECB was relatively mild. Statements from the Fed representatives regarding the monetary policy, as well as Brexit. Significant data from the USA will be published this afternoon. Despite a relatively positive global sentiment, the zloty's value is losing slightly.

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

  • 14.30: Data from the American labor market. New workplaces in non-agricultural sector (estimations: positive 160k); unemployment rate (estimations: 4.9%); change in the salaries level (estimations: positive 2.5%).
  • 16.00: Orders from the American industry (estimations: positive 1.9%).
  • 16.00: ISM from the American services sector (estimations: 55.3).
  • 18.30: Testimony from Lael Brainard of the Fed, regarding the economic situation, as well as the monetary policy.

ECB and Fed

Yesterday's decisions from the European Central Bank (ECB), as well as Mario Draghi's press conference, were not crucial for the currency market. Each main element of the monetary policy remained at the same level, and macroeconomic estimations have been revised to a minor degree. Moreover, the revisions were consistent with economists' expectations. We wrote more about this in yesterday's Afternoon Analysis.

Additionally, according to Bloomberg estimates, the volatility range of the euro on the day of the ECB meeting, was at its lowest level since March 2015 (the start of quantitative easing). The testimony from Mario Draghi has been published shortly after the press conference. It presented the necessity of initiating the unconventional monetary policy in the situation when inflation remains below its goal, and interest rates are at the zero level. However, it did not bring any new announcements. It has only confirmed the dovish approach of the ECB chairman towards the monetary policy.

The past few hours brought a few comments from the Federal Reserve representatives regarding the current events. Both Daniel Tarullo and Charles Evans focused on the matters of Brexit. In their opinion they create uncertainty. This also confirms that the British referendum might be a decisive element for postponing the monetary tightening in the USA up until July. Theoretically, this may be considered as a negative signal for the USD.

However, yesterday we took note that the dollar should be a beneficiary of Brexit. The American currency should also benefit from the United Kingdom remaining in the European Union. This is because the Fed would gain a possibility of returning to the concept of monetary tightening. Thus, the referendum may only be negative if the FOMC postpones the moment of monetary tightening because of the uncertainty.

Getting back to Charles Evans; he emphasized in London that the Fed consensus regarding two hikes is so strong is because it had been supported by nine FOMC members in March. However, the other seven representatives (apart from one) expected three or four hikes considering that the consensus was moved up, rather than down. Evans himself supports two hikes (25 bps each) for this year. His remarks should be interpreted as relatively hawkish, as well as supportive for the dollar, considering that Evans was considered as one of the most dovish members of the Fed.

American data series

As usual, the first Friday of the month will bring a data series from the USA. The market will focus on three basic readings: a change in the salaries level, new workplaces in non-agricultural sector, and the unemployment rate. Economists expectations regarding the above data are positive 2.5% y/y, positive 160k and 4.9%, respectively. However, it is worth noting that a significant percentage of economists expect that the unemployment rate will remain at the 5.0% level, as well as salaries to decrease to 2.4%, or even 2.3%. This increases the risk of a negative surprise.

The above mentioned data may also be disturbed by another fact. On the week that the Labor Department collected the surveys, there was a strike among 35k employees of Verizon company. This may impact an incorrect interpretation of the data.

Another element of uncertainty is the ISM reading from the services sector, as well as Lael Brainard's speech this evening. She is considered as one of the most dovish FOMC members. Moreover, Brainard represents five governors who have a right to vote regarding interest rates. This makes their comments more significant for the market, than statements from the Fed's regional department chairs.

Thus, the market may be exposed to many troublesome signals this afternoon. However, if the data is worse than expected, the dollar should become stronger. This is despite the possibility that Brainard may even show a dovish attitude. Only a reading of clearly weaker payrolls, as well as salaries combined with a dovish testimony from Brainard, may clearly wear-off the dollar. Moreover, this may also postpone the hikes from June/July to September.

No consolidation despite a better sentiment

Sentiment on the broad market is relatively positive since the morning. However, it does not concern the Polish national currency. The EUR/PLN remains near the 4.40 level, and the USD/PLN is within the area of 3.95. Moreover, the zloty lost approximately 0.5% against the forint for the past two days. This was partially caused by the forthcoming data of the announcement of the Presidential Office's plan regarding loans denominated in the franc, as well as the media speculating on the possible solutions.

However, it is partly an effect of a rather tense fiscal situation, uncertainty regarding the perspective of a decrease in retirement age, and new decisions from the rating agencies. This also increases the sensitivity of the zloty to the anticipated monetary tightening in the USA. As a result, the zloty's condition remains worse than the condition of the Hungarian forint.

When it comes for today's American data, slightly weaker readings should be favorable for the PLN, due to a larger probability of the Fed keeping its mild monetary policy. On the other hand, positive publications from the United States may increase evaluation of the euro, as well as the dollar. This may cause the EUR/PLN to go above 4.40, and the USD/PLN above 3.95.

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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