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Daily analysis 05.06.2015

, author:

Marcin Lipka

The debt market generates moves on the euro. Inner quarrels in Syriza postpone the agreement with the creditors. The IMF advises the Federal Reserve to raise the interest rates in the first half of 2016. Day with the labour market. The zloty works off part of the losses, but its dependence on the German debt instruments can be maintained.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

  • 14.30: New working places in the non-agricultural sector in the USA (estimations: +225 thousand)
  • 14.30: Unemployment rate in the USA (estimations: 5.4%)
  • 14.30: Change to salaries' in the USA (estimations: +0.2% m/m and +2.2% y/y)

The German debt and Greece

The commotion on the German debt market, partly caused by the statements from Mario Draghi during the EBC summit (more about this topic in Wednesday's afternoon analysis), has also clearly marked its presence during yesterday's quotations. Profitability of the 10- year-old German bonds increased to barely 1%. This means a change by almost 30 base points within less than 24 hours of trade.

Higher profitability of the debt which is not caused by the decrease of debtor's credibility, should suggest higher inflation. This means a milder monetary policy in the future. It increased the euro's attractiveness. Due to the growing difference in the future interest rates between the USA and the eurozone, the common currency has been losing value since June 2014.

Additionally, strong variability of future interest rates is also an element, which decreases the attractiveness of carry trade (e.g. lending the capital to the low interest euro, and locating it in the higher interest dollar). Closing these positions can also be an element that supports the common currency to the dollar.

Greece has definitely lost its significance in this commotion. Even though it was announced yesterday, that Greece will not pay the upcoming installments of its credits from the IMF, and will ask the Fund to postpone the payment to the end of the month (it is the second case like this in history, along with a similar motion from Zambia in the 80s), the euro was practically indifferent to this news.

The European currency is also resistant to the information that the government in Athens has a negative attitude towards the proposals of reform made by the creditors. Also the Ministry of Finance has officially stated, that those plans could increase the unemployment, and the poverty in Greece. Thus, it is a clear step backwards in the negotiations, exchange of reform plans, discussions inside Syriza, and establishing the next “final date”. However, despite how much the negotiations will be extended, the chances for Greece's exit from the eurozone or even bankruptcy are still relatively small.

Interesting advice from the IMF to the Fed

Yesterday's press conference of Christine Lagarde regarding the annual IMF review of the American economy was very interesting. The International Monetary Fund chairwoman indicated some economical weaknesses of the USA, and that raising the interest rates would have a negative impact on the emerging markets. She recommended that the Fed should start tightening the monetary policy not sooner than in the first half of 2016.

It's a significantly later term than it was assumed by the market, as well as the Fed representatives. They stand by the scenario of making the first increase already in 2015 (probably in September or in December – author's footnote). The IMF often gives advice to its members. However, such specific recommendations given at a crucial moment (less than two weeks before June's summit of the Fed), have made quite a commotion in the USA. There is a small chance for them to cause a quick change of attitude in the Federal Reserve. However, it will surely become a topic of many discussions, and can be a good argument for the dovish part of the Fed.

Few words about the foreign market

The market currently has a serious problem. Should it concentrate on the information from Greece, changes of debt instruments' profitability, or maybe the expectations regarding the tightening of the monetary policy in the USA. Today, after 14.30 the last one of these matters will be in the spotlight. If the reading of new working places in a non-agricultural sector will amount to more than 250 thousand, should visibly enforce the USD. Especially if it will be combined with the upward review of the data from the recent months, and salary increases to higher than 2.2% y/y.

On the other hand, if the publication will be below 200 thousand, and the downward review of the data for the previous two months will be visible (at least 30 thousand), the discussion about postponing the first increase of the interest rates to December, may arise again. This should be a negative signal for the USD. It can even lead to the test of 1.15 on the EUR/USD in the forthcoming days.

The zloty works off part of its losses

The commotion on the European debt instruments market (mainly the increase of the German treasury bonds' profitability), caused a clear enforcement of the euro to the zloty. During Thursday's session the EUR/PLN reached 4.19. The pressure on the zloty was increased by the decreased liquidity on FX, and a closed market of the national bonds, which was not able to adjust to the changes on the German bonds.

Today the situation has calmed down a little, and the EUR/PLN has returned to the area of 4.15. However, the zloty quite strong dependence on the reactions for the German bonds, can be a reason for the significant variability on the EUR/PLN, which in contrast to the pound, franc or dollar, was always a stable pair.

If today's data from the USA will be worse than the prognoses (slender chances), we should observe a decrease on all the currency pairs related to the zloty. The USD can even go to the area of 3.65. On the other hand, in case of a better reading not only the dollar can visibly gain (even up to 3.75), but the zloty can also lose approximately 0.02 PLN in relation to the euro.

Anticipated levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1150-1.1250 1.1050-1.1150 1.1250-1.1350
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.7000-3.7400 3.7400-3.7800 3.6600-3.7000
Range CHF/PLN 3.9400-3.9800 3.9400-3.9800 3.9400-3.9800

Anticipated levels of GBP/PLN according to the GBP/USD rate:

Range GBP/USD 1.5250-1.5350 1.5150-1.5250 1.5350-1.5450
Range GBP/PLN 5.6200-5.6600 5.6000-5.6400 5.6600-5.7000

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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