Daily analysis 17.08.2015:
The Eurogroup accepts the agreement of the labour groups regarding Greece, and practically opens the way to passing on the first part of aid to the country by August 20th. China suggests “two way” movements of the renminbi. Thanks to the agreement with Greece, the zloty is slightly stronger.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.
- 14.30: Empire State – business cycle accelerating index in the state of New York (estimations: 4.50 points).
Agreement regarding Greece accepted
On Friday evening the ministers of finance of the eurozone countries accepted an agreement, regarding the third aid program for Greece. According to the document published by the Eurogroup, the first part will be worth 26 billion euros, and will be divided into two parts.
10 billion euros will be spent for capitalising the banks. Another 13 billion will be transferred to Athens by August 20th. Thanks to this, Greece will be able to purchase the bonds from the EBC. The rest of the aid (3 billion) will be paid when Greece will accept the reform established during July's summit and negotiations of the labour groups.
A further 15 billion euros, which will also be used for capitalising the banks, will be transferred by November 15th. It will happen after conducting endurance tests of the banking sector. There is not much information regarding the Greek reform in the two-page document. The 30-page document on the other hand, which was published by the financial media, is still unofficial. Thus it is still unclear what the obligations of Greece are.
Aid for Greece still needs to be accepted by some parliaments of the eurozone, including the German. However, it should not be a big problem. Voting in the Bundestag will occur this Wednesday. Even if the members of the CDU/CSU vote against the program for Athens, the Eurogroup plan will be accepted by almost two hundred parliamentarians from the SPD.
The standpoint of the International Monetary Fund (IMF) is still unclear. The organisation lead by Christine Lagarde will certainly not be a creditor of Greece from the beginning. However, it is possible that the IMF will join the program, when the eurozone will decide to relieve Greece in paying its debt to a certain degree. For the time being, only the extension of the debt deadline or a decrease in or the suspension of percentage is considered. Cancelling a part of the debt is not possible. It was confirmed by Angela Merkel in her interview for ZDF television on the weekend.
Currently, the mid-term probability of Grexit has clearly decreased. It is confirmed not only by the behaviour of the creditors, but also Prime Minister Tsipras. He will try to take advantage of his current popularity, and will probably decide on earlier elections, which will help him to manage the country more effectively during a period of serious reform.
Thus, this time the topic of Greece, and especially the danger that it creates for the eurozone, should finally fade out. Of course, it is still possible that in a few months the market will again concentrate on Athens due to social disturbances or unfulfilled obligations. However, this perspective is definitely too long for the currency market to take it into consideration now.
Warning from China
During the weekend the main economist of the Chinese Central Bank (PBOC) published a warning statement to investors. They are to expect a variability of the rate in both directions. Ma Jun also added that the government “does not intend to participate in the currency war”.
The suggestion of the PBOC about the lack of intentions to devalue renminbi, may calm down the sentiments on the local currency for the forthcoming weeks. However, if the results of export or industry continue to deteriorate, pressure of the market on the PBOC can be so strong that the further devaluation/depreciation can become a fact. The two-percent range of movement on the USD/CNY pair theoretically allows renminbi to wear off to the dollar by even 10% in one week. Thus, even by maintaining the current conditions of exchange, the Chinese currency can clearly wear off, and formally it does not have to be considered as a planned devaluation.
Few words about the foreign currency market
The first days of this week are relatively poor in macroeconomic data. Thus, any bigger movements caused by the publications of economic indexes from the USA and Europe should not be expected. However, the market can prepare itself for Wednesday's “minutes” from the recent meeting of the Federal Reserve. It was at this point when the Fed slightly modified its announcement, and suggested that the first increase in interest rates on the other side of the ocean will happen soon. However, it is possible that the discussion's publication can be relatively dovish, especially that in June, 7 members of the Fed refused the idea of two increases in interest rates this year.
Stabilisation after the Greek agreement
The subdued reaction of the Polish zloty on last week's weaker data from the current account and the GDP, show that evaluation of the PLN is focused on information from abroad. The acceptance of aid for Greece is positive information for the zloty. However, currently it should be entirely included in the EUR/PLN rate.
Thus, the area of 4.17-4.18 per euro can be considered as the base case scenario in the forthcoming hours. Perhaps the zloty will slightly enforce on Wednesday, if it appears that the Bundestag accepted the aid for Greece. However, depreciation below 4.15 is currently unlikely. Also the quotations of the Franc should not leave the area of 3.85.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate:
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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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