Afternoon analysis 16.02.2016:
The German ZEW looks better than the headline suggests. Another weak publication from the US manufacturing. The record high employment in Poland with wages up 4.0% y/y.
The ZEW and Empire State indexes
At first the German ZEW index seemed to look quite weak. The publication at 1 point is the second lowest since November 2012, which was the year remembered as one of the worst sovereign debt crisis in recent history. However, it is worth noting that the survey responds to a certain question. If the situation in German economy is expected to “improve”, “get worse” or remain “no change”.
Regarding this issue the economists need to evaluate the current conditions. For example in latter part of 2014 the ZEW also dropped towards 0 level (range of publication from minus 100 to plus 100). At that time the current economic situation was also seen as close to zero.
This time the situation is different. Since last three quarters the current condition remain favourable at levels around 50-60. what means that on net 50-60% respondents see the economic situation as good. During fairly positive grade it is hard to expect further improvement especially that outside environment clearly deteriorated in the recent weeks. As a result, when the current assessment turn to much worse level it would be much more visible indication that problems are coming to the German economy. Currently it is premature to make such assumption.
A few positives signals can be found in the New York Empire State. The index rose from minus 19.4 points (lowest level since March 2009) to minus 16.6 points with expectations at around minus 10 points.
New orders remain deeply in negative territory while the companies are still expecting the staff reduction. Summarizing the data the New York Fed writes that “The six-month outlook remained weak, with the index for future general business conditions up only slightly from last month's milti-year low”.
Regarding the current market situation, both ZEW and the Empire State have a small impact on currency valuation. Much more focus would be placed on tomorrow's “minutes' publication from January Federal Reserve meeting. Any hint regarding longer pause on easing should be regarded as negative for the dollar. On the other hand, if the doves position looks weak in the discussion it should put some pressure on the EUR/USD and push the pair toward 1.1100.
Solid data from Poland
The zloty, in line with other EM currencies, remains under some pressure from global risk aversion increase. It is, however, worth noting that publications form GUS look solid. Despite that they have no immediate impact on the currency market, they show that the current employment situation in Poland looks robust and should decrease the odds for any monetary loosening.
Wages rose 4% y/y while employment increased by 2.3% y/y which is the best result since 2011. Additionally the the employment in enterprise sector exceeded 5.7 million which was the highest in history. This data should discourage the MPC to push for more monetary policy stimulus.
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