Afternoon analysis 28.05.2015

, author:

Piotr Lonczak

The European Central Bank warned that the Greek stand-off may lead to contagious effect. The zloty declined in the second part of the session. The franc moved above 4 zloty.

In the report on financial stability, the European Central Bank warned a failure to reach an agreement on bailout program may pose severe consequences. If there is no deal with the international lenders, the risk premium will rise in the case of countries facing fiscal problems.

The current market situation in Greece reveals consequences of the stand-off. Banking stocks and government bonds are pressured. The Frankfurt-based institution said, similar developments might hit other markets.

The view presented by the ECB is somewhat surprising. Until now, the central bank has been trying to calm the situation. The ECB cited a variety of tolls implemented, which would tame the contagion effect. Naturally, the central bank has been pointing at the quantitative easing.

An unexpected change of view would have been aimed at pressuring negotiators. Today Ewald Nowotny from the ECB discarded the possibility to ease the term of short-term liquidity provisions for Athens. The ECB is trying to avoid a situation in which it would be put in a position to make a decision that would decide whether Greece will remain solvent or it will go bankrupt.

Dollar in a good shape

The US labor market data was weaker than it was expected. The number of unemployment claims increased 7k to 282k – clearly a higher result than 270k that was projected.

Still, the reading did not manage to weaken the dollar, as the number of new unemployed person remained below 300k for a twelfth weak in a row. It was a proof, the US labor market condition is still solid in spite of some deterioration in the economic reports in the beginning of the year. The companies don't reduce employment - a sign the expectations are still quite optimistic.

Comments from John Williams from the Federal Reserve were also supportive for the dollar. The San Francisco Fed president said the central bank is on track to raise the interest rates later this year. The policymaker repeated a June interest rate hike is still possible (more on the issue in our morning commentary).

The US data concerning the labor market and rather hawkish comments supported for the dollar. In turn, the euro was under pressure of the uncertainty concerning Greece. Although the major currency pair was near its previous close, the probability of further declines is quite high.

Weaker zloty

The zloty posted losses against all its major pairs. The franc moved above 4 zloty.

The developments in the Polish currency market has been determined by the sentiment in the broad market. Given the Greek stand-off and the expectations for interest rate hikes in the US it is clearly adverse for the zloty. Moreover, the Polish currency is pressured by the deterioration of economic data and the presence of political risk (more in our previous commentaries). Until the Greek uncertainty prevails, the zloty will remain under pressure.

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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