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Daily analysis 04.11.2016

Data from the American labor market will most likely have a minor impact on the dollar. This is especially taking into consideration the forthcoming presidential elections, as well as the message from the Federal Reserve. The pound sustained its growth from yesterday. The zloty remains relatively weak, but changes on the Polish currency are minor.

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

  • 13.30: Data from the American labor market: a change in employment level (estimations: positive 156k), unemployment rate (estimations: 4.9%), change in salaries (estimations: positive 0.3% m/m).

Will data from the American labor market be ignored?

The past few days brought some significant information from the market. The American ISM data from yesterday was worse than expected. However, the 55 point reading shouldn’t change the attitude of the Federal Reserve. The ADP report can be considered neutral as well, taking into consideration revision of last month’s data.

The Federal Reserve message wasn’t surprising either. This was despite the fact that Rosengren did not vote for rate hikes and the lack of a clear suggestion of the monetary tightening in December. In general, we can claim that this information confirms the base case scenario from a few days ago.

However, the problem is that economic publications are currently of minor significance, due to the forthcoming presidential elections. Investors find it difficult to estimate which candidate will win. The majority of investors also have the British referendum in mind, which showed how difficult it is to guess the society’s views while only basing on traditional surveys.

As a result, today’s data from the American labor market may appear relatively neutral. This is even taking into consideration that it will be significantly different than the consensus. However, it’s most likely that an employment reading below 100k would weaken the dollar and anything above 200k would strengthen it. The situation should be similar when it comes to salaries. Only a difference at the level of at least 0.2% would cause a visible reaction. Therefore, there is a large chance that the data from the Labor Department would be neutral. This is taking into consideration that historically this data causes high volatility, as well as a nervous reaction in the market.

Pound sustains its growth from yesterday

Since the week’s beginning, the pound gained approximately 2% against the dollar and 1% against the euro. This is because of the verdict from the London Court regarding the Article 50 and neutral approach of the Bank of England.

Some market participants are speculating that the necessity of activating Article 50 by Parliament will cause Brexit negotiations to be more pragmatic than they would be according to the strategy of Theresa May’s administration. This scenario may be justified to a certain degree. However, the situation may go both ways.

The Supreme Court may give a completely different verdict. This may cause the position of the British government to be stronger. On the other hand, if the Supreme Court sustains the decision of the London Court, this may contribute to early parliamentary elections in the United Kingdom. This would most likely strengthen the Conservative Party, taking into consideration that their survey advantage is currently significantly higher than it was last year.

In conclusion, postponing the formal decision regarding Brexit may be positive for the pound. The British currency may test the level of 5.00 against the zloty. However, if it appears that avoiding hard Brexit is limited, the pound may return to its recent minimum.

Zloty is quite weak

Taking into consideration the average global sentiment, the situation of the zloty is rather positive. The EUR/PLN is slightly above the 4.30 level and the dollar is below 3.90. However, if we look at the PLN/HUF, we will see that the zloty should be at least 0.02-0.03 PLN stronger against the basic currencies. This is even taking into consideration the negative PMI data from the beginning of this week.

When it comes to today’s payrolls, the market’s reaction will most likely be relatively limited. This is a result of the fact that the market is focused on the matters regarding the American elections, rather than the macroeconomic data. Therefore, only a reading which is significantly different than the consensus may cause a visible reaction. As a result, there is a minor chance that this month’s macro data will clearly disturb the zloty’s quotations.

 

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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