In the euro zone, wages are still rising strongly

Yesterday we observed a continuation of the correction on American stock indices. He lost the most Nasdaq Composite (-0,9%), SP500 decreased by 0,6%. and the Dow Jones fell 0,2 percent. The EUR/USD rate reached the highest level since the beginning of February and set a local peak around 1,0835.

Yesterday, the ECB published data on wages in the euro zone in the fourth quarter of 2023. In turn, inflation data from Canada turned out to be lower than expected and weakened CAD. The results of the main company related to artificial intelligence (Nvidia) are scheduled for today. We will also receive minutes from the last FOMC meeting.

"Is the fight against inflation effective?"

Yesterday European Central Bank provided data on wages in the fourth quarter of 2023. The negotiated wage rate increased by 4,5%. y/y, which means a slight decrease compared to the third quarter (4,7%). Wage dynamics still remains high. Data for January 2024 showed a renewed increase after the previous autumn decline. The ECB estimates that throughout 2024 the dynamics will average 4,5%.

On Friday, a member of the Governing Council, Ms. Schnabel, will present more information during her speech entitled "Is the fight against inflation effective?" The partial indicators of the purchasing managers' index for the euro area show that both in the service and industrial sectors companies they intend to pass on labor costs to consumers, which will mean another price increase and inflation in the coming months.

This dynamics of wage growth makes achieving the ECB's target more difficult and will be possible to achieve later than before. Before reducing the cost of money, the European institution will certainly want to wait for the next data for the first quarter of 2024. The latest data will already include the wage agreement reached in Germany in December, therefore the dynamics of wage growth will probably be even higher. At the moment, the market sees approximately 40 percent. chances for a rate reduction in April and estimates the June move at slightly over 80%. If the data for the period from January to March surprises with higher results, then even a downward move in the middle of the year will be questionable.

In line with the Bank of Canada's purpose

Yesterday's inflation data from Canada turned out to be a pleasant surprise. Instead of another month-on-month increase, prices actually dropped quite significantly compared to December, by -0,12 percent on a seasonally adjusted basis. This brought the year-over-year rate to its lowest level since last June, when hopes were raised that Canada's inflation problem would soon become a thing of the past. The two main measures of core inflation also posted month-over-month readings in line with the Bank of Canada's target. The publication weakened CAD. USD/CAD rate rose from 1,3475 to 1,3535 this morning. The prices "bounced" off the medium-term upward trend line. The closest technical resistance is the ceiling of 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 increased by 12,8% in January. which means the result is higher than expected. This is the result of, among others, minimum wage increase from this year. The result of industrial production was a negative surprise. The growth (1,6% y/y) turned out to be much below market expectations. In turn, producer prices showed a decline. We received a result (-9% y/y) indicating deflation. This is another negative result in a row. The deflationary picture is the result of poor economic conditions but also the result of inventory reduction.

The zloty remains strong, which is mainly the result of higher levels of the eurodollar. The EUR/PLN exchange rate is within the February lows (currently 4,3170). The USD/PLN quotations moved away from the technical resistance at 4,06 and are currently just above the level of 4,00.

Source: Łukasz Zembik, OANDA TMS Brokers