Afternoon analysis 29.06.2015

, author:

Piotr Lonczak

Some relief in the markets after the initial wave of the Greek uncertainty. Germany and France are not going to make a new concession to Greece. The zloty recouped some of its earlier losses.

The Greek Prime Minister Alexis Tsipras surprised everyone by his decision to make a referendum on the bailout program. Ahead of the previous weekend, a final agreement was expected to be signed. Comments from both Greek negotiators and international creditors were supporting an optimistic scenario.

However, Athens have chosen the way of confrontation with the country's creditors. The referendum will be made on Sunday 5 July. Regardless of the referendum outcome, the market will be very volatile in the coming days.

Monday showed the first consequences of the Greek government's decisions. Greece imposed capital controls. Banks will remain shut until at least 6 July. And the ATM withdrawal limit has been set at 60 euro. The Athens stock exchange was also shut.

Syriza's decision hit the country. Since the beginning of the year, the Greek economy has been faltering. But currently, the economy will suffer as the capital controls will impede normal operations of companies, which will result in a GDP drop. As a result, whole improvement in the economic situation will vanish (2014 was the best year since the crisis hit).

No concessions

Major countries have stiffened their stance on Greece. Today, Germany and France said that there will be no concessions to the Greek expectations. As a result, the likelihood for any reform relief is very low. The European lawmakers reiterated that their offer was very generous.

The European Commission President Jean-Claude Juncker said that the result of Sunday's referendum will show whether Greece is willing to stay in the eurozone and the European Union. And if the opponents win, it will signal that Greece will distance itself from Europe. Similar remarks were made by the French President Francois Hollande and the German Chancellor Angela Merkel. The Berlin government chief also highlighted the principle of respecting eurozone rules as a source of the currency union strength.

Now the market attention will focus on the expectations for the referendum result. The latest polls showed that the reform supporters are in the majority. A poll published by the Proto Thema newspaper showed that 57 percent is willing to stay in the eurozone versus 29 percent against. And the To Vima newspaper poll showed 47.2 percent voting for, 33 percent against and 18.4 undecided.

However, Greece is due to make a 1.6 billion euro payment to the International Monetary Fund on 30. June. The probability that Athens will meet the country's obligation is very small, thus the nation will be bankrupt tomorrow.

In the meantime, the European Central Bank refused to increase the emergency liquidity limit by 6 billion euro. The Greek Central Bank asked the ECB on Sunday, according to Reuters, citing unofficial sources. As a result, the Greek banking system is in a very poor position.

Zloty pressured

The zloty recouped earlier losses after the first hit of the market uncertainty. However, the Polish currency remained lower than it was on Friday. The Swiss franc remained above 4 zloty in spite of the Swiss National Bank President warnings on possible market interventions.

The zloty will remain under the influence of the Greek crisis. Currently, the base scenario is that Greece will default on the IMF payment. As a result, the risk aversion will be strengthened. Moreover, the Sunday referendum will be a significant source of anxiety. Thus, the zloty will continue 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 Sp. z o.o is prohibited.

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