News

Daily analysis 29.04.2016

, author:

Piotr Lonczak

In spite of the solid labor market expansion, German households do not spend money. The eurozone GDP surprised positively. The zloty dropped against the euro and the franc.

Yesterday's data from the German labor market was very good. The number of the unemployed dropped 15k. The unemployment rate stood at 6.2 percent. It was the lowest level in 25 years. Moreover, employment increased to 43.4 million on record.

In spite of a very good situation in the labor market, households do not spend money. Today's data showed that consumption remained subdued.

In March, retail sales dropped 1.1 percent on a monthly basis against the expected 0.3 percent increase. On a yearly basis, it increased 0.7 percent against the 2.2 percent forecast. However, the prior month report was revised up.

Subdued growth of retail sales may suggest that consumption, recently the major engine of the German economy, would not support the GDP as previously expected. As a result, the expansion may slow down. Given the situation, Germany may be more susceptible to risk factors abroad. In this context, the major issue is the Chinese slowdown, and the similar problems of other emerging market countries.

The fact that German households do not spend money poses severe issue to the ECB. It is not very likely that the inflation rate will rebound if the major economy's consumption is flat. The latest meeting of the ECB showed that the central bank is willing to wait for the results of previously taken actions, and is not planning to increase stimulus very soon.

The consumption problem may be a wider issue. The latest data from eurozone countries showed that the deflation pressure increased. Moreover, today's report on the eurozone inflation was below the forecast. The HICP inflation rate dropped to negative 0.2 percent and the core inflation rate stood at 0.8 percent. Both reports were below the forecast. In contrast, the unemployment rate dropped to 10.2 percent from the 10.4 percentage rate in the prior month.

And finally, the GDP’s report on the monetary union was above the forecast. The GDP growth stood at 1.6 percent on a yearly basis. It was above the 1.4 percent that was forecasted. A stronger economy did not support the inflation rate.

Dollar's weakness

The Fed's stance suggests that although the central bank is willing to increase rates, the pace of tightening will be rather slow. The scenario is supported by the latest reports, among which, only the labor market data did not disappoint. The key was yesterday's GDP report. The US economy grew only 0.5 percent in the first quarter - which was the lowest pace in two years.

The market expectations are only for one hike in December. Although the Fed still suggests two hikes, a similar scenario is becoming less probable. Given the situation, we see a broad weakness of the dollar. The EUR/USD moved above 1.14. Last time a similar level was seen was in October 2015. The weakness of the dollar supported commodities. Oil and copper posted significant gains in spite of an adverse market environment.

A strong euro and negative sentiment in the market, resulted in gains of the EUR/PLN and CHF/PLN. As a result, the Polish currency gave away its earlier gains. Currently, the probability of a stronger zloty is limited.


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.

Return to the main list


See also: