Good news from the US economy

The winning streak is being continued – at least when it comes to the US data. What was started last Thursday with a great reading of weekly claims was later continued with upbeat PMIs and with ADP report and ISM services yesterday. ADP (+91k) shows that the private sector is still adding employment and the pace didn’t slow. ISM services – while in line with consensus (53 pts.) remains comfortably in a zone of expansion.

Is that a turnaround? Probably not. Consumer sentiment is still around the rock bottom, oil prices didn’t decline enough to provide a significant relief and a global slowdown will affect the US negatively.

Is that a good news? Absolutely yes. We received the data for the first full month after a negative shock (rating related tumble on equity markets) in August. Activity not only did not collapse but it actually sped up somewhat. It is still far from what one would like to see in a buoyant recovery but it’s definitely not a straight road to a recession.

Of course the whole picture might look differently on Friday after the payrolls release but assuming that it fits into the trend, we might see an attempt for some kind of a larger rebound. Regardless of short-term tendencies, the data reduce the risk of a massive sell-off related to recession fears (but the bear market may well still continue on a slowdown impact and Europe-centered nervousness).

EURUSD – Tirchet’s final call

The EURUSD reacted positively to this improved sentiment yesterday even though the data are not positive for the euro. To the contrary: better US data means a smaller chance for the Fed to follow “operation twist” with more aggressive steps, while weak data from the euro zone put a pressure on the ECB to relax monetary conditions.

Will that happen today? That is unlikely. The ECB might do something to improve confidence in the banking sector (there was a speculation that it might start purchasing asset backed securities from banks) but interest rate cut seems improbable since the bank hiked rates as recently as July.

However, ECB might be forced to move soon. With the European economy deteriorating quickly and with the new president the Bank might relax monetary policy as soon as December and probably not later than January. The interest rate picture is still negative for the pair and suggest a downward movement below 1,30 in a medium term.

Przemysław Kwiecień PhD, Chief Economist

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