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Afternoon analysis 17.07.2015

, author:

Piotr Lonczak

Bundestag backed the Greek bridge financing. The IMF Chair Christine Lagarde said Greece needs debt relief. The reports supported the dollar. The zloty helped by the data from the Polish economy.

The International Monetary Fund Chair Christine Lagarde said that Greece needs some form of debt relief to allow the bailout program to work. The measures to be considered are an extension of the debt maturity of reducing the level of interest.

The issue of debt relief is getting more important for the Washington-based institution. However, the eurozone countries stance is clear. There will be no debt reduction.

The German Bundestag backed the Greek bailout negotiations. However, a few CDU members, the chancellor Angela Merkel's party, voted against. A sign that the German defiance against funneling more money to Greece is getting stronger.

Before the vote Angela Merkel warned that the alternative for a Greek deal is chaos. Moreover, she added that there is no possibility to leave the eurozone for a moment and then go back. The statement was an answer to the proposal of the Finance Minister Wolfgang Schaeuble, who argued that Athens should consider a temporary exit from the union.

Earlier, the French and the Finnish lawmakers agreed to the Greek deal. As a result, Athens will launch the negotiations with the ESM next week, since the probability that the process will be stopped is virtually zero. The key issue will be to keep the Greek government working, as the Prime Minister Alexis Tsipras’ position has deteriorated. A potential risk factor could be the process of implementation of the bills imposed by the creditors on the Greek parliament.

Better forecasts

The European Central Bank published the survey of professional forecasters. Economists from the major financial institutions are more optimistic in regard to inflation. The inflation rate will stay at 0.2 percent this year and 1.3 percent next year. Earlier the forecasts were 0.1 percent and 1.2 percent, respectively.

The employment rates are expected to decline further. It will be 11 percent this year, and 10.5 percent next year. Earlier the forecasts were 11.1 percent and 10.6 percent, respectively. The forecast for the GDP growth was kept at a 1,4 percent level, but the expectations for the next year increased to 1.8 percent from a 1.7 percent level.

Dollar supported

After solid reports from the industry on Wednesday, today the data from the housing market were good. The report on housing permits exceeded the forecast, and the data regarding housing starts increased more than anticipated. And finally, the inflation rate was in line with the forecast (it was plus 0.1 percent against 0 percent in the previous month).

The dollar is in a position to extend gains. Some improvement in the report came after quite hawkish comments from the Federal Reserve. Moreover, the latest survey on the interest rates expectations pointed at the September term as the moment of the first interest rate hikes (more on the issue in our previous commentary).

At last some positive data

Today's data from the Polish economy was the first positive data this month. The report on industrial production showed a 7.6 percent increase against the 6.6 percent that was forecast. Growth stood at 2.8 percent in the previous month. Moreover, the reading on retail sales exceeded the forecast. It rose 3.8 percent against the 3.2 percent that was projected. Moreover, the production prices index dropped less than was anticipated.

Although today's numbers were quite good, the earlier data was mixed. As a result, this factor will be neutral for the zloty in the long term. The zloty is currently under the influence of risk appetite stemming from the progress in Greece. However, in the long term, the expectations for the Fed to raise rates will limit the zloty's appreciation potential.


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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