Daily analysis 29.06.2015:
Greek failure to strike a deal with its creditors resulted in imposing bank holidays. Bonds, stocks and currencies reactions. Consequences for the euro area. The zloty fell to most currencies but losses have been limited.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- News regarding Greece lowering or increasing odds for further negotiations.
Talks failed to reach an agreement
On Friday night it turned out that Tsipras had scheduled a referendum regarding the implementing or rejecting of reforms presented by the creditors. It was a surprising decision especially that shortly before the weekend an agreement was almost certain. The expected breakthrough was suggested both by the negotiators and document leaks to the press.
There is nothing wrong with a referendum. However, the timing is key. On June 30, the current bailout program expires and Greece walking away from negotiations results in a failure to receive the last tranche of help. Also, on June 30 Athens has to pay the IMF a 1.6 billion euro installment. But the referendum is scheduled on July 5th, 5 days after the key dates.
Tsipras played with Brussels “all in”, but the ECB also had an adequate answer. The European monetary authorities decided to cap the emergency liquidity assistance for Greek banks. After a few hours, it resulted in the implementation of capital controls and “banking holidays” until next Tuesday.
The failure to run the financial system is a strong headwind for the already weak Greek economy. Freezing the banking sector is not only a pain to society, it also hits business which is unable to function normally. Additionally, we are at the beginning of the holiday season in Greece which is the best period for the tourist industry.
The market reaction during the Asian and European opening is hardly surprising. This scenario, even though it was unexpected, had been intensely discussed. It was not surprising to see the euro and EM currencies plunge and the Swiss franc to soar. German yields dropped and peripheral rose. A significant slide was also seen on equities across the board.
However, it is also worth noting that the depreciation is far from panic. Firstly, investors feel fairly secure thanks to the QE operation, which should stabilize the debt market. There have been many improvements in the banking sector. The debt is not in private hands so it cannot actually be sold on the market.
Additionally, speculators are afraid of a coordinated action from the central banks. Before 10.00 CET Thomas Jordan the SNB chief announced that the Swiss National Bank intervened during the night. Institutions had almost the whole weekend to deal with the issue so they were probably well prepared.
A relative calm reaction does not mean that most moves are behind us. If during the week creditors fail to resume talks with Greece, then just before the weekend tensions may rise. Moreover, if the Greeks reject the reform package it may dampen confidence in the whole euro area. On the other hand, if the society approves the new austerity deal, there will be a government change in Athens. So, more uncertainty is on the horizon either way.
What is next?
The following days on all asset classes should be dependant on development from Greece. Investors could positively see the return to negotiation table, but actually it is not logical to see it before the referendum results. The market will get more involved in new polls showing whether the supporters of a deal remain in the majority.
Besides, Greek investors should also observe the reaction from the Federal Reserve. William Dudley told the Financial Times that he expects two interest rate hikes (dollar positive) but was also concerned about Greece. If Athens generate more problems on the market it may refrain the Fed to hike rates in September.
The foreign market in a few sentences.
The market will be waiting for any clues whether Greece and its creditors can return to the negotiation table. However, before the referendum results the odds are pretty low that any side can suggest a concession. In the background, there are also macro data. Currently, however, the odds for a significant rebound on the EUR/USD should remain and the selling pressure is the base case scenario.
The zloty under limited pressure
The zloty significantly weakened to most currencies. The slide to the euro was limited but for the dollar and Swiss franc investors had to pay 4.05 and 3.80 respectively. In the short time, the situation regarding Greece and the turmoil in the common currency area are bearish for the Polish currency. If the society accepts the reforms and the situations should calm down.
The following days may be difficult. The Swiss franc is expected to remain above 4.00 during the most part of the week and if Greeks are moving toward rejecting the deal, the pressure on the PLN will increase. Additionally, the Swiss currency should be the strongest globally and in the negative scenario it may be even worth around 4.10.
The least amount of trouble is expected on the EUR/PLN. Firstly, due to the fact that the euro is going to be weaker globally and secondly moves to the zloty on the European currency experience the least volatility. The PLN, similarly to the global market, is expected to closely follow the issues regarding Greece.
Anticipated levels of PLN according to the EUR/USD rate
Anticipated GBP/PLN levels according to the GBP/USD rate.
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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