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Daily analysis 15.06.2015

, author:

Marcin Lipka

More issues between Greece and its creditors, but some kind of agreement is a base case scenario. Contradictory estimations of the dot plot by different economic sources. The zloty remains stable but the current account may cause negative surprise. The second part of the week can generate more pressure on the PLN.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • 14.00: Inflation from Poland (survey: +0.2% m/m and minus 0.7% y/y)
  • 14.00: Polish current account (survey: +1.2 billion euro)
  • 14.30: Empire State index from the US (survey: 5.9 points)
  • 15.15: Industrial production from the US (survey: +0.2% m/m)

More game of chicken on Greece

Last Thursday the IMF delegation left the negotiation table with Greece and returned to the other side of the pond. The Greeks didn't want to come across as being weak and the most recent meeting with the EU officials ended after 45 minutes due to a lack of agreement prospects.

More scepticism is also formulated in Germany. The deputy chancellor Sigmar Gabriel, who was considered fairly benign on Tsipras, suggested that the Greek exit from the eurozone is getting more probable. Despite the fact that the most recent talks are far from a deal the agreements still seem to be the base case scenario.

If Greece fails to agree with creditors and the ECB stops providing liquidity to the country it will push the Hellenic Republic to issue its own currency. In such a crisis situation the “new drahma” would decrease the Greeks' purchasing power even by half. Such a fast wealth slump does not look to be a preferable scenario by the Tsipras administration.

We can, of course, imagine that Greece will fail to repay the IMF and introduce capital control. This would cause a significant fear to the society, which is then much more eager to accept the creditors conditions. On the other hand, however, polls are showing that many citizens are already prepared to agree on further reforms and a more tough stance can only worsen the situation.

As a result the base case scenario is the agreement either on June 18th during the Eurogroup meeting or at the EU summit on June 25-26th. There is also a chance that Athens might find 1.6 billion for the IMF which is due at the end of the month and another deadline might be pushed to July 20th when the payment to the ECB is scheduled. There must be some kind of agreement by the latter part of July unless Greece wants to be out of the eurozone.

Different views on the Fed meeting

The key message from the upcoming Fed meeting would be the hypothetical interest rate pace presented by each Federal Reserve member. The median projection is often used to estimate the future rate. Morgan Stanley claims the benchmark from the dot plot would be at 0.375% in December, which actually only gives us one hike. On the other hand, The Wall Street Journal survey with economists gives 0.58%. In March, the FOMC median projection was at 0.63% for the end of 2015.

Even more differences are expected at the end of 2016. The MS claims that it would only be 1.375% while the WSJ survey predicts the benchmark at 1.8%. If the expectations presented by the financial newspaper turn out to be true we should see the dollar strength or even the comeback to the greenback appreciation trend. On the other hand, if the Fed gets closer to the MS expectations the message will be dollar negative.

The foreign market in a few sentences.

Uncertainty will be mounting due to the lack of an agreement between the creditors and Greece. It will be clearly visible when no deal is agreed upon after the meeting on June 18th. Before that, however, the market is going to mainly focus on the Federal Reserve which will send medium term signals for the dollar.

The PLN is stable but fear amounts

The local currency is fairly stable taking into account the issues concerning Greece. This situation will probably not change in the following hours. However, if no progress is made between Athens and Brussels on Thursday we should expect a further zloty weakness, which may push the EUR/PLN to around 4.20 at the end of the week.

It is also worth to noting the weaker data from the Polish economy. The GUS published the trade balance. The surplus observed in the first three months has disappeared. It may negatively impact the current account which is scheduled to be published today.

The forthcoming days may be hard for the Polish currency especially if the incoming data (retail sales and industrial production) fail to meet expectations, the Fed turns to be more hawkish and the Greek deal remains unattainable. In a negative scenario the EUR/PLN may top 4.20 per euro and CHF/PLN rise above 4.00.

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 4.1300-4.1700 4.1300-4.1700 4.1300-4.1700
Range USD/PLN 3.6900-3.7300 3.7300-3.7700 3.6500-3.6900
Range CHF/PLN 3.9400-3.9800 3.9400-3.9800 3.9400-3.9800

Anticipated GBP/PLN levels according to the GBP/PLN rate.

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.6600-5.7000 5.6200-5.6600 5.7000-5.7400

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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