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Afternoon analysis 14.07.2015

, author:

Piotr Lonczak

The dollar dropped as retail sales missed the forecast. Confusion with bridge financing for Greece. The zloty declined against all its major pairs.

After signing an agreement on Monday, the politicians moved to action to implement the deal. Currently, the eurozone finance ministers are seeking a solution that will provide bridge financing for Athens. The money will allow the Greek government to start operating normally and to reopen banks before the European Stability Mechanism bailout is launched.

One of the considered proposals is to use money from the European Financial Stability Facility. In this case, the money would come from the European Union countries, not only from the eurozone states. However, the United Kingdom and a few other countries criticized a similar idea. If the proposal is accepted, the Polish government will also support the bridge financing scheme for Greece.

The Eurogroup Chairman Jeroen Dijsselbloem said, that a variety of options are being taken under consideration, but all is flawed in a technical or legal way. However, it is only the very first hurdle.

In Greece, Prime Minister Alexis Tsipras was heavily criticized. The Syriza chief took the power by promising to end the austerity. Later, he conducted a referendum, which rebuffed more belt tightening. And finally, Tsipras agreed to implement policies that he promised to discard in negotiation with the Greek creditors.

A radical fraction of the Syriza party said it will vote against the implementation of measures expected by the creditors, that are needed to start bridge financing. Moreover, the Independent Greeks party also said it will be against. Nevertheless, Tsipras will be supported by opposition parties, thus the reform bills will be passed. This might be the first step to revamping the government.

Greece is expected to pay 3.5 billion euro to the European Central Bank next Monday. If the nation misses the payment, the ECB will freeze emergency liquidity provisions to the Greek banks, which will result in their collapse.

When the Greek parliament passes the reform bills, the eurozone countries will decide to give money to Athens. On Friday, the vote in Bundestag is scheduled. Severe criticism of the Greek government in Germany poses a risk regarding the outcome of the vote.

Weak sales

Retail sales in the US missed the forecast. It dropped 0.3 percent against the previous month. A result below the plus 0.2 percent that was expected. Moreover, the prior month result was revised down to 1 percent from 1.2 percent. The report excluding transportation equipment showed a decline of 0.1 percent against the plus 0.5 percent that was forecast.

After some improvement over the previous months, the consumption data disappoints again. The situation puts the Federal Reserve in a difficult position. Given the solid labor market and low gasoline prices, the weak consumption growth poses a risk to the Fed's inflation goal. As a result, the likelihood of interest rates hikes in September is falling. However, the former Dallas Fed president Richard Fisher said he sees September as the most likely term for an interest rate hike.

On Wednesday, the Fed Chair Janet Yellen will present the report on monetary policy to the Congress. It is very likely, she will give some hints regarding the monetary policy and interest rates hikes. Given the latest reports, Yellen's remarks may be quite dovish.

Weaker zloty

After three days of increasing, the zloty gave away some gains. The Polish currency was influenced by the broad market situation, where the doubts on the Greek deal and the ability of the Greek government to implement reforms, put some pressure on investors. This factor is however transitory.

The National Bank of Poland showed the report on the balance of payment. In May exports increased 9.7 percent, and imports were unchanged. Trade surplus increased to 946 million euro. The current account balance was 1.2 billion euro against the plus 0.3 billion that was expected.

The prospect of the end of the Greek crisis and possibly a more dovish Fed may pave the way for a stronger zloty.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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