Afternoon analysis 24.07.2015:
Greece's creditors are sending experts back to Athens. The euro dropped after poor reports. The zloty declined against all major pairs.
Today, the European Commission said the creditors' experts will return to Athens within days. It was part of the agreement signed by the Greek Prime Minister Alexis Tsipras and the nation's international creditors.
As a result, the marathon of negotiations is going to start very soon. Greece is going to get more than 80 billion euros in the third bailout. In exchange for a new bailout, the nation committed to implement reforms which will improve the economy's competitiveness and the viability of public finance. As a result, the Greeks will face more belt-tightening, which will spur tensions.
After receiving a 7 billion euro bridge loan, the nation has to overcome the next hurdles to secure help from the European Stabilizing Mechanism. Athens must repay 3.2 billion euros to the European Central Bank due on 20 August. If the country misses the deadline, the banking sector will collapse.
The International Monetary Fund reiterated that the Greek debt is not sustainable in the current circumstances. The Washington-based institution will not support the bailout program, if it will not include some form of debt relief.
On the other hand, a different opinion on the issue has been presented by the European countries. The German Chancellor Angela Merkel dismissed any nominal debt reduction. She said, a decision on whether to provide any debt relief should be based on the assessment of progress that Greece will make in the field of reform implementation. If the nation meets its obligation, a maturity extension or lowering rates will be considered.
The oil price in New York declined further below the 50 dollar level to 48.60 dollars. It was the lowest level since the beginning of April. Other commodities also dropped. Gold and copper were among them.
A broad based decline in the commodities market is caused by the fundamental factors. Today's reports from the European industry missed the forecasts (more on the issue in our previous commentary). Moreover, the figures from the emerging market economies were also poor. The PMI index for China dropped to the lowest level in 15 months. Limited demand caused by the weakness of major importing economies is difficult to handle in the situation of oversupply.
As a result, currencies of commodities exporting countries continue to decline. The Canadian dollar, the Norwegian crown and the Russian ruble were under pressure. The South African rand continued to drop in spite of an interest rate hike by the central bank.
However, in the second part of the session, the dollar was weakened by the report from the housing market. New home sales declined to the 482k level. Moreover, the previous month data was revised down. The PMI index for the US industry was close to the forecast, thus it did not affect the major currency pair.
On Friday, the zloty declined against all its major pairs. However, the extent of decline was relatively small, thus one can say that the Polish currency was stabilizing.
The future tendency in the zloty market will be shaped by the expectations concerning the Federal Reserve plan to tighten the monetary policy. On Wednesday, the Fed will release its rate decision. The central bank's statement will help to assess whether the interest rate level will be lifted in September for the first time since 2006.
If the scenario is confirmed, the dollar will gain. As a result, the USD/PLN will probably resume increase. However, the EUR/PLN will rather stabilize with a tendency to decline.
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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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