Afternoon analysis 03.02.2015

, author:

Piotr Lonczak

The zloty strengthened before the Monetary Policy Council announces its decision on rates tomorrow. The ruble extended gains as oil price increased. Germany to stiffen its stance on Greek debt negotiations.

Earlier this year the Syriza taking power in Greece has been seen as a major risk factor for financial markets. Just after the elections the impact of this situation was broad and there was some nervousness in the markets. However later this factor has been becoming more local and it narrowed to the Greek financial market. And now, its impact is almost not visible in the broad market.

The Greek three year bond yields moved above 20 percent in last few day – it was the highest level since 2012. Today the situation was tamed and bonds yields dropped in the highest pace since 2012.

The improvement in sentiment was caused by Greek politicians who are now looking for a compromise with their European partners on debt. Finance minister Yanis Varoufakis said that his country is not willing to write down debt, but to find a solution that will take some financial burden from the country without negatively affecting creditors (more on this in our morning commentary).

The recent shift in Greek stance is supportive for the euro – the EUR/USD moved above 1.144. It was the highest level since January 22.

Merkel stiffen on Greece

Germany is not willing to reach an easy agreement to Greece on the debt write down, according to Bloomberg unofficial sources. Chancellor Angela Merkel said that negotiations will drag on until Greece runs out of money in few months. Later the country will be more flexible as it may not have enough resources for a normal government work.

Although it is not an official Berlin stance, it revealed that Angela Merkel is not bowing under Syriza's demands. Given this situation coupled with a shift in Greece, the risk for a write down on country's debt was reduced. This is supportive for the euro.

Risk sentiment improved

The decline in risk concerning Greece has materialized in the movements in the broad market, that is dominated by heightened risk appetite. Thus, one can observe stock gains in the European and US markets.

This factor supported the rubble. The Russian currency dropped to the lowest level on record on last Friday after the central bank unexpectedly cut interest rates. The cost of credit was lowered by 2 percentage points to 15 percent. Currently the Russian currency is posting its second winning session in a row.

However, the major driver for the rubble is oil price developments. The price of oil is rising due to strikes in the US major refinery. The impact of this factor will last only until the strike goes on, thus it is going to be valid in a short term, but in the longer term oil doesn't have solid arguments for growth. Therefore, current situation is rather a correction, than a change of the trend.

Zloty stronger before MPC

The Monetary Policy Council will reveal its decision on interest rates tomorrow. The Polish monetary authorities are not expected to cut the cost of credit (more in our morning commentary).

If the MPC leave rates at current level, the zloty may be strengthened. Poland is currently attracting global capital due to solid GDP growth and low GDP to debt ratio coupled with high interest rates and deflation.

As a result, yields on ten year government bonds dropped recently below 2 percent – the lowest level in history. If the MPC keeps current rates, the impact of this situation will result in a stronger zloty that would gain against its major pairs.

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

Return to the main list

See also: