Yesterday, we observed a continuation of the correction on the American stock indices. Nasdaq Composite lost the most (-0.9 percent), SP500 fell by 0.6 percent and Dow Jones dropped by 0.2 percent. The EUR/USD rate reached its highest level since the beginning of February, establishing a local peak around 1.0835. The ECB released data yesterday on wages in the euro area in the fourth quarter of 2023. Meanwhile, inflation data from Canada turned out to be lower than expected, weakening the CAD. Today, the publication of the main results related to artificial intelligence (Nvidia) is planned. We will also receive the minutes from the last FOMC meeting.
Yesterday, the European Central Bank released data on wages in the fourth quarter of 2023. The negotiated wage rate increased by 4.5 percent y/y, indicating a slight decrease compared to the third quarter (4.7 percent). The wage dynamics remain high. Data for January 2024 showed a renewed increase after a previous autumnal decline. The ECB estimates that the dynamics will average 4.5 percent throughout 2024. On Friday, a member of the Board of Governors – Ms. Schnabel – will present more information during her speech titled “Is the fight against inflation effective”. Partial indicators of the Purchasing Managers’ Index for the euro area show that both the service sector and the industry intend to pass labor costs onto consumers, which is likely to lead to another increase in prices and an increase in inflation in the coming months.
This wage growth dynamic makes it more difficult for the ECB to achieve its target and it will likely reach it later than before. The European institution will certainly want to wait for the next data for the first quarter of 2024 before lowering the cost of money. The most recent data will already include the wage agreement reached in Germany in December, thus the wage growth dynamic will probably be even higher. At this point, the market sees about a 40 percent chance of a rate cut in April and at the same time prices the June movement at slightly above 80 percent. If data for the period from January to March surprise with higher results, then even a downward move in the middle of the year will be questionable.
Yesterday’s data from Canada on inflation was a pleasant surprise. Instead of another increase in the month-to-month index, prices in reality fell quite significantly compared to December, by -0.12 percent seasonally adjusted. This caused the year-to-year index to settle at its lowest level since June last year, when hopes emerged that the inflation problem in Canada would soon become a thing of the past. The two main core measures of inflation also recorded month-to-month readings in line with the Bank of Canada’s target. The publication weakened the CAD. The USD/CAD rate rose from 1.3475 to 1.3535 this morning. The quotes “bounced” off the medium-term uptrend line. The nearest technical resistance is 1.3540 – the peaks of February 6 and January 17 this year.
Yesterday, we also received a package of data from the Polish economy. Average wages in the corporate sector rose by 12.8 percent in January, indicating a result higher than forecasts. This is the result of, among other things, a rise in the minimum wage from this year. The result of industrial production was a negative surprise. The increase (1.6 percent y/y) turned out to be much below market expectations. On the other hand, producer prices turned out to be falling. A result was received (-9 percent y/y) indicating deflation. This is another consecutive negative result. The deflationary picture is a result of a weak economic situation but also a reduction of inventories.
The zloty remains strong, which is mainly due to higher eurodollar levels. The EUR/PLN rate is within the range of February lows (currently 4.3170). The USD/PLN exchange rate has moved away from the technical resistance at 4.06 and is currently just above the 4.00 level.
Łukasz Zembik Oanda TMS Brokers
