Daily analysis 16.07.2015

, author:

Marcin Lipka

First regulations forced by the creditors were accepted by the Greek parliament, but the future of Tsipras' government remains uncertain. Janet Yellen tends towards a sooner increase in interest rates. Bank of Canada decreases interest rates. The zloty gains thanks to the return of appetite for risk.

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

  • 14.30: Press conference after the EBC meeting.
  • 14.30: Weekly jobless claims from the USA (estimations: 285 thousand).
  • 20.30: Second day of Janet Yellen's testimony in the Congress.

The Greek voting and the EBC

The Greek voting regarding the regulations being forced by the creditors ended after midnight. 229 out of 300 parliamentarians accepted the first plan of reform, which allows to gain approximately 7 billion euros worth of aid from the EFSM in the following days. It is possible that the money will be quickly used for buying bonds from the EBC on 20 July (over 3 billion euros) and also for settling debt to the IMF (Greece needs to pay 2 billion euros straight away).

However, it is worth noting that yesterday's voting does not need to be considered as Tsipras' victory. 38 members of his coalition did not support the changes in the regulations. This means that if it was not for the definitive “yes” from the opposition, the initial conditions of the creditors would not have been accepted.

Those who voted against the agreement established in Brussels, were, for example, the former minister of finance Varoufakis and also the minister for energy, Lafazanis. Thus it is possible that Tsipras will need to reconstruct his cabinet. This may end with the dismissal of those parliamentarians who were loyal to the former ministers. This will result in losing the majority in the parliament and enforce the necessity of forming a government of national unity.

If Tsipras manages to co-operate with the opposition, and his cabinet adopts reforms forced by the ESM program, there is a chance that in the following weeks Greece will receive aid allowing them to function for at least 3 years. There is still the question about the society's attitude. However, while Tsipras leads the government there is a big chance for avoiding some serious disturbances in the country. After all, the current leader of Syriza is still the most trustworthy among the Greek politicians.

Another element of uncertainty is the situation of the Greek banking system. According to unofficial information published by Bloomberg, the Greek National Bank applied for an increase in emergency financing by 1.5 billion euros. The EBC denied this application. It is however possible that if Greece buys the bonds from the EBC which pass on 20 July, the institution may slightly increase liquidity.

This will not result in the abolition of capital control, nor a significant increase in the limit of cash withdrawal. It is more likely the EBC will want to keep the current limitations. The restoration of the banking system's activity can begin only after granting the ESM program and the sum of 20-25 billion euros will be used to capitalise banks.

Yellen is closer to hikes

Janet Yellen's testimony published yesterday, as well as the session of questions and answers suggest that the Fed chair is preparing the market for this year's interest rates hikes. Additionally, it seemed that the first monetary tightening can occur sooner than the market expects, that is even in September.

Yellen is relatively positive towards the national and global economy. She underestimates the negative impact of Greece, or the slower development in China. Additionally, the FOMC chairwoman prefers to start the hikes sooner and combine them with a mild tempo of monetary tightening rather than starting this process later and risking stronger increases.

Decision of the Central Bank of Canada

Wednesday's meeting of the Canadian monetary authorities was very interesting. The Bank of Canada clearly noticed the risk related with the low price of oil and decreased interest rates for the second time this year. This time to a level of 0.5%. Additionally, the economic growth for 2015 was reviewed from 1.9% to 1.1% in the economic projections and the second quarter, just as the first one, will probably end with a depreciation of the GDP in q/q relation.

The Canadian dollar has clearly lost in value due to an increase in interest rates, as well as to pessimistic prognoses. The USD/CAN pair went to the area of 1.2950. A similar thing can happen to other currencies of the countries dependent on oil export, especially the Russian rouble or the Norwegian krona.

Few words about the foreign market

Enforcement of the American currency after yesterday's testimony of Janet Yellen, and a slow revival of carry trade are the basic factors pushing the EUR/USD downwards. Today, the market will also take some notice of the EBC press conference. However, there will mainly be questions regarding Greece and the restoration of the banking system's functionality. Mario Draghi will rather not tell anything new about the monetary policy or quantitative easing.

Zloty takes advantage of sentiment's improvement

Since the morning the zloty has clearly gained in value to the euro. It is related to the Greek parliament's acceptance of the regulations, which will allow granting the bridge financing to Greece and achieving the aid from the ESM program by the country. Additionally, the sentiment on the European capital market is getting increasingly better. Also the euro will probably be used again as the currency which finances carry trade. It is possible that a part of this capital will also arrive to the PLN.

Tomorrow the investors can concentrate on the series of the national data. The economists expect the production to increase in June by 7% y/y and the retail sale by 3.6%. If both of these readings are higher by at least one percent, there is a chance for the EUR/PLN to test the level of 4.10 downwards during Friday's session.

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

Range EUR/USD 1.0850-1.0950 1.0750-1.0850 1.0950-1.1050
Range EUR/PLN 4.1000-4.1400 4.1000-4.1400 4.1000-4.1400
Range USD/PLN 3.7400-3.7800 3.7700-3.8100 3.7000-3.7400
Range CHF/PLN 3.9200-3.9600 3.9200-3.9600 3.9200-3.9600

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

Range GBP/USD 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
Range GBP/PLN 5.8200-5.8600 5.7800-5.8200 5.8600-5.9000

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.

Return to the main list

See also: