Afternoon analysis 22.04.2016:
The Eurogroup reported a breakthrough in negotiations with Greece. Heightened volatility after the ECB meeting. The zloty exceeded losses against all major pairs as foreign investors leave.
Financial Times informed on possible form of debt relief for Greece. Eurogroup Chairman Jeroen Dijsselbloem confirmed the eurozone countries all willing to consider some form of relief in exchange for reforms. However, the Dutch politician said a nominal reduction is not very likely.
The IMF pressured on debt relief for Athens. In this context IMF Managing Director Christine Lagarde said the Greek debt may be stabilized without a nominal cut. Given the situation, it is very likely the Greek negotiations will end in the next week. As a result, the nation will get the funds from the bailout program.
In the last year the Greek crisis was the major risk factor for the markets. During the turmoil there were even speculation that the eurozone may collapse. All in all, the negative scenario did not materialize and this risk factor will be soon mitigated.
The European Central Bank released the Survey of Professional Forecasters. The projections were cut for the GDP growth and inflation rate in the eurozone. The newest estimates assume 0.3 percent inflation in 2016 against 0.7 percent in the last report. Within the next two years the price growth is expected to accelerate to 1.3 and 1.6 percent, respectively. The GDP growth is expected at 1.5 percent against 1.7 percent in the previous forecast. In the 2017-18 period the economy may accelerate to 1.6 and 1.7 percent, accordingly.
Although the economy will growth at a slower pace, the labor market situation is expected to improve in a wider extent. The unemployment rate is expected at 10.1 percent this year against 10.3 percent in the prior report. It may drop to 9.7 and 9.3 percent within the next two years.
Today's PMI indexes showed the expansion in the eurozone stabilizes at a low level. The broad index for the eurozone was slightly below the prior reading. Still, the expansion is uneven. The situation deteriorated in France, while Germany accelerated.
On Friday heightened volatility prevailed in the markets and there was some risk aversion. The major stock indexes dropped. It could have been caused by the ECB meeting. In this context yesterday's press conference of Mario Draghi disappointed as the ECB chief gave no new clues on additional stimulus. As a result, the euro initially gained, but late the common currency dropped.
The volatility in the markets coupled with some risk aversion resulted in drop of the emerging market currencies. The zloty was weaker that other currencies from this basket.
It could have been caused by rising probability that the Moody's agency will cut the nation's rating after S&P lowered the grade in January. Given the situation, the investment attractiveness recently has deteriorated. The Bloomberg agency said the Franklin Templeton bond fund cut its holding of the Polish debt to 3.5 percent. It was the lowest level in six years. In the January-February period international investors cut the Polish debt holdings by 10 percent. As a result, the zloty may drop further.
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