Afternoon analysis 27.06.2016

, author:

Marcin Lipka

Slightly more details regarding further moves from Cameron, as well as Merkel. Historical level of the debt instruments. The zloty has slightly reduced its overvalue due to a minor global rebound of the pound.

Positive and negative information

A quick ending to the uncertainty regarding the future relations between the United Kingdom and the European Union, would be the best case scenario to control the market situation. It would decrease the risk of a further deterioration of condition of shares. This would probably met with a positive reaction of the emerging markets currencies, including the zloty.

We received new information in the afternoon. Angela Merkel suggested that informal discussions should take place, before the official negotiations regarding the conditions of Brexit begin. This can be interpreted as a rather negative information.

On the other hand, David Cameron denied the idea of conducting the new referendum. However, he decided to appoint a special team of experts that will prepare the procedure of the UK leaving the EU. This can be interpreted as a positive signal. Previously, there was a danger that no actions will be made until October, so until the new prime minister is appointed.

It is also possible that the problem of the new prime minister nomination can be solved faster. The Tories may present their candidate before September 2nd. As a result, if the negotiation teams is ready, as well as the new prime minister will be appointed in Summer, the entire process will go slightly faster than we could expect this morning. This would help the pound to work-off some of its losses. This is even considering that its today's losses against the dollar exceed 3%.

Records in the debt instruments market. Steady zloty.

We often omit the debt instruments market while focusing on the shares market, as well as the currency market. However, we can observe some interesting events there as well. The capital flow to the safe coasts causes the German two-year treasury bonds to be within the range of a negative 0.65%.

The euro zone is not the only place where profitability of the core-states are suggesting a record low inflation, as well as a weak economic growth. Rates of the American ten-year treasury bonds went down to the 1.40-1.50% range after Brexit. Apart from a short moment in 2012, profitability of the American debt was never this low.

However, the Polish treasury bonds look quite attractive. This is even considering the risk. Despite today's depreciation, profitability of the 10-year bonds is exceeding 3.00%. This may cause some wallet investors to add them to their wallet. They may count that a lower global inflation, as well as a certain calming of the global situation, will allow then to earn on an increase in prices of the bonds, as well as a certain rebound of the PLN. We may say that a relative stabilization of the zloty today, is a result of this scenario.

The EUR/PLN went to the 4.45 level this afternoon. The situation is also better on the franc, as well as the dollar. The zloty is going further from today's maximum on these currencies. It is worth noting today's comments regarding impact of Brexit on the economic growth from the national ministries.

The vice-minister of finance, Leszek Skiba, who was cited by the Polish Press Agency (PAP), claimed that Brexit may cause the GDP decrease in 2017, at the level of 0.1-0.2%. On the other hand, vice-prime minister Morawiecki told the PAP that, “the NBP, as well as the Ministry of Finance estimate this impact for 0.5-1.0%.” Various estimations may concern that the ministries do not have precise studies regarding Brexit.

On the other hand, a lot will depend on the elements that are very difficult to foresee. Most of all, we do not know how will the cooperation between the EU and the UK look like, will the UK not breakdown, or how will entrepreneurs, as well as consumers react in the environment of significant uncertainty. Depending on the above factors, the final effect may actually be near estimations of Skiba, as well as reach the sizes that were presented by Morawiecki.

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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