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Afternoon analysis 16.06.2015

, author:

Piotr Lonczak

Rumors that Greece is willing to postpone the IMF payment hit the euro for the moment. Mixed numbers from the US housing market. The zloty was stable before the Fed.

The euro resumed a decline on Tuesday. The common currency remained under the influence of the anxiety concerning the future of Greece. After the Greek Prime Minister Alexis Tsipras left the negotiation table on Sunday, it was expected that the next deadline for a debt deal would be the Eurogroup meeting on Thursday.

Contrary to the expectations, Athens are not going to make a new proposal and expected more concessions from the country's international creditors. During today's speech in parliament Alexis Tsipras, in harsh words, blamed the International Monetary Fund for the standoff. Moreover, Greece retreated from the budget concessions to its creditors.

Given the situation, the market sentiment deteriorated. The European markets extended its losing streak. Similarly, the US market was also in the red. The mounting uncertainty affected investors in the bond market. The yield on bonds of countries with fiscal problems increased against the German assets, which are regarded as less risky.

The nervousness concerning the future of Greece was elevated by rumors that the nation is going to postpone the June payment to the IMF. By the end of the month, Greece has to repay a 1.6 billion euro bill to the Washington-based institution. Speculations were that the country is willing to postpone the payment for six months.

Although the information was denied the market sentiment remained negative. Greece stiffened its stance at a crucial moment of the negotiations, which negatively weighted on the euro and pressured the risk assets. The scenario that Greece will go bankrupt and the eurozone may be dismantled will cloud the market sentiment until the deal is done.

Mixed reports from the US

At the beginning of the year, the Federal Reserve was expected to raise rates in June. However, in the first months of the year the economic reports were rather weak, which resulted in a lower probability that the Fed will decide to tighten so soon.

Currently, the US central bank is expected to raise rates for the first time in September. If tomorrow's statement from the Federal Open Market Committee confirms this view, the dollar may be strengthened. The main argument for a similar move is the labor market situation, that is very good in spite of a brief slowdown.

Still, the other reports are not as clear as the employment data, which leaves some scope for speculations. Moreover, the latest comments from the Fed members are also rather balanced when it comes to the tightening. As a result, tomorrow's statement may suggest that the Fed will not rush with interest rate hikes.

Today's data from the housing market were mixed. The number of building permits exceeded the forecast. But the report on housing starts was weaker than projected. Releases did not help the dollar in spite of the fact that today's data from the eurozone was weak. The ZEW index missed the expectations as the Greek uncertainty hit the sentiment.

Stable zloty

The Polish currency was not affected by the inflation data. After yesterday's reading on consumer prices below the forecast today's data on the core inflation growth (a measure that excludes volatile energy and food prices) was also lower than projected (it increased 0.4 percent against 0.5 percent). As a result, the expectations for interest rate hikes will drop, which will affect the zloty in the long run.

For now the zloty's behaviour is not reflecting the influence of the Greek uncertainty. And the US reports diminish the probability of interest rate hikes, which helps the risk assets and the zloty. Still, in the face of the Greek crisis, the zloty will stabilize with a tendency to decline.


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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