Afternoon analysis 08.07.2015:
Greece asked the European Stability Mechanism to provide support. The Prime Minister Alexis Tsipras will reveal a detailed reform plan within two days. The euro rebounded after a drop on Tuesday. The zloty posted some gains against all its major pairs except the euro.
As expected, Greece requested aid from the European Stability Mechanism. Athens asked for a three year loan facility.
In return, the Greek Finance Minister Euclid Tsakalotos promised to implement reforms. The overhaul process will start in the next week. The reform plan will include changes in the tax system and the pension system. It was an important change, as the Syriza government has been opposed to any changes in these fields.
However, the amount of money that Greece requested still remained unclear. Earlier, the International Monetary Fund estimated that the nation will need 70 billion euros to remain sustainable. The information was given by the Financial Times. More details on the latest proposal will be provided when the Greek Prime Minister reveals his detailed plan.
Greece has until the end of the week to reach a deal with the country's creditors. And the reform plan is expected on Friday. It should point out how Greece is going to secure money to implement reforms and improve competitiveness. The Syriza government will be expected to agree on the reforms, which the party has opposed since it came to power.
However, if Athens miss the deadline, the nation will be excluded from the eurozone. The key European politicians expressed the threat, as they see a negative scenario as plausible. The situation should motivate the Greek government to work harder to keep the euro.
The European Central Bank will shut down the emergency liquidity provision if there is no deal on Sunday. The warning was expressed by the ECB board member Christian Noyer. The member of the monetary authorities also said, that the decision will be forced by the ECB rules of conduct.
There was no information about whether the Greek banks will be open tomorrow. Unofficial rumours said that the capital control regime will be valid until the end of the week.
The dollar dropped before "minutes"
The latest data from the US economy were mixed. Yesterday's report on the balance of trade showed that the deficit exceeded the forecast. It was caused by the largest drop in exports in three months. A consequence of a relatively strong dollar. Other reports were also quite mild. The June report on employment situation was in line with the forecast, but the data from previous months were revised down. Moreover, the number of newly unemployed people increased.
Given the situation, the dovish part of the Fed has been given more arguments to postpone interest rate hikes. As a result, the dollar dropped. The EUR/USD was strengthened in spite of the Greek standoff.
The zloty dropped against the euro
The Polish currency was under pressure of risk aversion. However, the zloty was more stable today, than it was on Tuesday. The EUR/USD was an exception however, as the euro exceeded the 4.23 level. It was the highest level since 29 January.
The Monetary Policy Council left interest rates unchanged, as expected. The National Bank of Poland increased the forecast for GDP and inflation. During the press conference, the NBP President Marek Belka said that the report did not take the Greek crisis into account. The forecast that includes a negative scenario will be presented on Monday. However, Marek Belka said that the Polish economy is not exposed to the Greek crisis as the connection between the countries is very limited.
The NBP chief refused to comment on the recent proposals on bank tax and franc credit conversion. When asked about the drop in the zloty, the NBP chief reiterated that the zloty is in the market regime.
Until the Greek crisis is over, the probability of a stronger zloty increase is limited. However, if the nation reaches a deal on Sunday, the zloty will probably post significant gains.
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