No fury, no freedom
Wednesday’s forex session is marked by a clear improvement in sentiment after reports suggesting a possible de-escalation of tensions in the Middle East. After the deadline for the "epic fury" expired and the success of the freedom operation was celebrated following the passage of two ships through the Strait of Hormuz, Americans seem to have decided they deserve a break.
This delighted investors, who, perhaps a bit naively, are looking for chances for a lasting ceasefire. It led to a sharp discount in oil, equity indices surged, and the forex market clearly shows a reversal from the dollar in a wide stream. In this context it’s also worth remembering the upcoming visit of President Trump to China. It would be wise to announce a ceasefire earlier so that the host of the visit doesn’t inadvertently take credit.
RPP (non)decides
On the domestic market, investors focus on the start of the Monetary Policy Council meeting. Consensus assumes keeping rates unchanged after the March cut, which – to put it mildly – was hasty. As is usual in indecisive meetings, the tone of the communication and the assessment of geopolitical impact on inflation prospects will be key. In recent weeks, rising energy prices and increased oil market volatility have clearly heightened uncertainty about the future path of NBP monetary policy.
It’s also worth adding concerns about a possible rise in food prices later in the year. Today’s improved sentiment and falling commodity prices may partially ease inflationary pressure, though it’s more of a media fact. The zloty benefits from both the global sentiment improvement and the withdrawal of some hedging positions against a Middle East conflict escalation.
The labor market is doing well
In the macro calendar, investors track today’s final PMI readings for services in Europe, Swedish inflation data, and the afternoon ADP report from the U.S. labor market. PMI readings fell below the 50-point threshold for the composite index as expected, showing how much shadow the Middle East situation casts. The price dynamics in Sweden, which turned out to be… negative, look interesting. Swedes already had one of the lowest readings on the continent, and now they will have to deal with deflation.
On the broad market, the most attention is on the ADP reading from the U.S. labor market. Analysts expected a figure clearly higher than the previous 62,000, and the report ultimately surpassed those predictions. Employment rose by over 100,000 new jobs. Now the market will await the most important reading – the official NFP, to be announced on Friday.
