Afternoon analysis 19.05.2015

, author:

Piotr Lonczak

Comments from the ECB's Benoit Coeure put pressure on the euro. Moreover, the common currency remained under the influence of the anxiety concerning the future of Greece. In spite of solid numbers from the labor market the zloty moved lower as risk aversion was mounting.

On Tuesday the euro extended its drop against the dollar and other major pairs. The common currency was hit by comments from Benoit Coeure from the European Central Bank.

The policymaker said in his earlier statement that the Frankfurt-based institution is going to increase purchases of bonds in the asset purchase program in May and June to avoid. The measure is aimed at ensuring that the ongoing quantitative easing will not affect the debt market during summer months when the liquidity is more limited (more on the issue in our morning commentary).

As expected, Coeure's words affected the bond market. The yields on the euro zone bonds dropped significantly.

Greek uncertainty

Moreover, the broad market sentiment remained under the influence of the anxiety concerning the future of Greece. The newest information on the negotiation process say that the final agreement may be reach until the end of May. Still, there has been many final dates, thus the credibility of next terms is not strong. Chancellor Angela Merkel and president Francois Hollande said in a join statement that the agreement should be reached until the end of month.

Also the Greek finance minister Yanis Varoufakis said during a television interview that the deal will be likely signed within a week.

Bloomberg published a report on Greek finance that said Athens may stay afloat as long as eight weeks. The research is based on the assumption that the European Central Bank will not alter the collateral requirements for Greek banks (more on the issue in our previous commentaries).

The challenge that the Greek public finance will rather not withstand is the 3.5 billion euro payment to the ECB. The payment is due 20. June. As a result, the pressure mounts on the Greek government to broker a deal with country's international creditors. The issue will be discussed during the next European Union summit in Riga, although it was not planned in the first place. Nevertheless, there is a lot suggesting that the Greek stalemate will be ended soon.

Solid reports from the US

The reports from the US increased the probability that the dollar will continue to appreciate. The number of housing starts increased 20.2 percent (annualized) to 1.14 million from 944k in the previous month. The forecast was 1.02 million. Moreover, the data on building permits also exceeded expectations.

Now the focus shifts to the Federal Open Market Committee minutes scheduled tomorrow. Recent reports from the US economy were rather negative, what may result in a rather dovish statement. As a result, the dollar may not continue to rise.

Weak zloty

The Polish currency dropped for a second day and posted gains against all its major pairs. The sentiment towards risk assets remained under the influence of the anxiety concerning the future of Greece.

Solid reports from the Polish labor market has not affected the zloty. The wages growth stood at 3.7 percent - less than the forecast. Moreover, the unemployment growth stood at 1.1 percent - in line with the expectations. Tomorrow's data on the industrial production and the retail sales will be more important for the zloty.

The speculation of a possible dovish FOMC stance may support the zloty. The weakness of the US economy is shifting the expectations for the Fed to rise rates further into the future - a situation favorable for high yielding assets. The zloty remained in the position to extend gains, but the risk aversion is limiting its 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 Sp. z o.o is prohibited.

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