Recent inflation figures from Poland and Italy brought a touch of optimism. The problem, however, is that data from major economies turned out weaker. In Germany, price growth is accelerating, while across the Atlantic business sentiment indicators are clearly losing momentum.
Price Changes in Poland
Yesterday, we received preliminary inflation data from Poland. The good news is that prices did not rise compared to August. On an annual basis, however, inflation still stands at 2.9%, contrary to expectations. That is exactly the same result as in August. This means another month within the inflation target. What does this imply for currency markets? Since markets expected higher levels, the chances of interest rate cuts remain intact. Next week’s meeting now seems almost certain. However, the more investors expect further cuts in subsequent meetings, the weaker the Polish zloty is likely to become. Investors know that with upcoming rate cuts, returns on related instruments will decline.
Inflation in Europe
Yesterday also brought two important inflation readings from the eurozone. In Italy, inflation did not accelerate as projected to 1.7% and instead remained at 1.6%. On the other hand, signals from Germany are worrying. There, the pace of price growth exceeded expectations, reaching 2.4%. Analysts are beginning to raise warning flags. If inflation starts slipping out of control, not only will further rate cuts be off the table, but the European Central Bank may even be forced to hike rates to curb rising prices. Such a move would likely strengthen the euro against the U.S. dollar.
Data from the U.S.
Yesterday’s batch of U.S. data was not particularly impressive—nor was it especially encouraging. The Chicago PMI index was expected to rise to 43.1 points, but instead fell to 40.6. As a PMI index, its neutral level is 50 points, meaning the actual result was very poor. Adding to the disappointment, the Conference Board’s consumer confidence index came in weaker than forecast. To top it off, job vacancies exceeded expectations. On the surface, a large number of open positions seems positive, but it also signals that the labor market is struggling to find qualified specialists, while unemployment among lower-skilled workers is rising. Overall, these data are not encouraging. It is worth noting that it is precisely this weak backdrop that underpins expectations of further rate cuts in the U.S.
Today’s Macro Calendar
In addition to a series of PMI indicators, one key report to watch is:
- 14:15 – U.S. – ADP Employment Report
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: ceo.com.pl
