Daily analysis 20.07.2015

, author:

Marcin Lipka

No major shifts in the Greek government despite the fact that many Syriza members voted against reforms. Debt reduction is not possible in the eurozone according to Merkel. Hawkish part of the Polish MPC is getting more dovish – Andrzej Kazmierczak wants to keep interest rates unchanged till the end of 2017.

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

  • No macro data which may affect the analyzed pairs

Government reshuffle and payments to creditors

On Friday evening Prime Minister Tsipras announced changes in the Greek government. Despite the fact that 9 ministers were dismissed most of the new members came for Syriza coalition. The most important information was a shift in the Energy Ministry where a person more keen to start the privatization process was elected.

There are no reports that current coalition is on the verge of collapse as some might have expected. There is a risk that reforms required by the ESM program might not be implemented by the populist government, but on the other hand, if some of coalition members decide to vote against Tsipras, as was observed during the bridge financing procedure, the odds are still pretty high that the new law will be implemented due to the fact that most of the opposition is going to back the pro-European changes.

The situation might get more complex when Tsipras encounters more trouble in the following months when the government comes back to normal work. Then it is possible that some rebellion inside the Syriza party might push the country towards a new election in the fall. If more radical parties take power then an increased risk for Grexit will be visible once again..

Currently, however, it is still too distant a perspective to frighten the markets. Today, Greece paid back the overdue part of the IMF loan and bought back bonds from the EBC. As a result, Athens have only around 400 million euros left from the 7.2 billion euro bridge loan.

No chance for nominal debt reduction

In the weekend interview for German TV channel ARD Angela Merkel ruled out any nominal debt relief for Greece. The chancellor said that it cannot happen inside the eurozone due to the fact that such a measure is against the EU law. Merkel added that only outside the currency union such relief is possible.

The Greek government cannot count on the debt being forgiven. Still it is possible that the maturities might lengthen and interest can be cut. In the future it may be one of the major reasons why the current Greek prime minister might be dismissed.

The foreign markets in a few sentences

In the following days there are no major macro data. None of the Fed members are scheduled to speak. The market, however, might be getting ready for the FOMC meeting planned for July 29th. Taking into account the hawkish comments from Yellen in the Congress we can have a clearer indication that an interest rate hike is inevitable this year. It should benefit the US dollar.

More dovish from the Polish MPC

After recent dovish comments from Adam Glapiński another member of the former hawkish camp is claiming that interest rates should remain unchanged beyond 2016. Andrzej Kazmierczak told Bloomberg that the cost of credit should remain at the current level even during 2017.

The market is also getting ready that the benchmark can even be lowered. At the end of June the FRA 9x12 showed that WIBOR 3M in 9 months might be higher by 0.15 percentage points than the current interbank lending rate. Currently, the difference between WIBOR 3M and FRA 9x12 is minus 0.08 percentage point. It means that investors are rather anticipating more odds for a cut than for a rise.

It is mainly the result of opinions presented by the MPC members associated with the future government which is expected to loosen the monetary policy. But is possible that some investors might have underestimated their view change. If these expectations turn out to be true it might push the zloty lower in the medium term.

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 4.0800-4.1200 4.0800-4.1200 4.0800-4.1200
Range USD/PLN 3.7200-3.7600 3.7500-3.7900 3.6800-3.7200
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 5.8400-5.8800 5.8000-5.8400 5.8800-5.9200

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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