Daily analysis 30.12.2014

, author:

Marcin Lipka

Why aren't current problems of Greece causing as much commotion as two or four years ago? Yet another drop of oil price, which annual value fall reaches 50%. The minister Szczurek on concerning pace of changes on the zloty. Petrol prices are still 0.20 PLN compared to the wholesale market indications.

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

  • 14.30 CET: The current account deficit (1.8 millard euro).
  • 16.00 CET: Consumer Sentiment Index from the US prepared by the Conference Board.

Greece in the spotlight

Yesterday the Greek parliament failed to elect the new president. Ex-commissioner of the European Union got 168 votes, 12 short of what the constitution demands. As the result of that, new parliament election has to be prepared for January 25. This has at least two consequences.

Firstly, the discussion about the economic future of Greece begins again. Currently the survey shows that the party from far left Syriza leads by few per cent. The Alexis Tsipras party, instead of carrying on with the saving policy, want to renegotiate the debt. It plans to gain the society's support by minimum wage raise or increase the public sector significance in the domestic economy, with which the Greek identify with the prosperity years.

This obviously raises concerns that in case of Syriza winning, they might want to fulfill its promises and demands better conditions of repaying the debt to the International Monetary Fund. This will cause the suspension of the aid and might result in soon bankruptcy of the country and more problems in the euro zone.

The other consequence might be some consternation in the European Central Bank. Will Mario Draghi decide on purchasing the government bonds during the January 22 meeting after the Greek commotion? On the one hand, it might be one of the reasons of sooner QE introduction, foreseeing the Athens' problems resulting in more tension in the euro zone and decline the growth perspectives. On the other hand, however, this can be a risky game to play especially providing that the peripheral countries move towards radical political parties (e.g. during the next year's election in Spain).

There are some signs that this may turn out much more mildly than during earlier phases of the crisis. Firstly, the investor on the debt instruments market have been fooled twice by the pessimistic scenario and sold their bonds at low prices, later having to buy them back for far more. Therefore, they shall be very cautious, even if the situation gets worse. This should also reflect on the currency market, although of course events from yesterday are negative for the euro.

Yet another important issue was that Syriza not only will have problems getting the majority of votes needed to rule single-handedly, but also to win the election. Currently its advantage over the New Democracy is between 3 and 6 per cent, however, two months ago it was between 10 and 11 per cent. Moreover, creating a coalition with some other party might result in milding the position of the party from the left side and respecting the arrangements of the previous government. Then of course the most negative scenario will not be fulfilled. However, it can be assumed that if there is no additional information, the Greek issues will come up on the market throughout the next month and, most frequently, in the negative context regarding the euro.

Foreign market in a few sentences

The turn of the year 2014/2015 should be dominated by Greece. Yesterday EUR/USD fell to it's two-year low and there are no reasons for the trend to be reversed irrespectively of how the Greek voting goes. During the next several days testing the level of 1.20 should be observed on the euro-dollar.

Zloty remains stable. Petrol

In the afternoon Mateusz Szczurek the Polish minister of finance was interviewed by the Third Program of the Polish Radio. When asked about the situation on the currency market, he replied that 'what is the most troubling, is the pace of the changes', however, as little as the mere level of EUR/PLN around 4.30 isn't a threat for the government representative because it seems like a natural reaction to the weakening of the currencies of the trade partners of Poland. This second statement, however, is hard to agree with as the zloty is stronger only than the currencies of countries which have deep economic problems (Russia, Ukraine) or exporting raw materials (Norway) which aren't even as much as 10 per cent of the trade.

The Polish currency lost against the euro, dollar, pound and the Czech krona or even forint, which strengthened against the zloty by 2 per cent during last half of year. And despite the fact that the strategy of lowering the value of the domestic currency seems to be a trend nowadays in order to stimulate the economic growth, this mainly applies to the developed countries which lately have been plunged in the economic stagnation or those which currencies strengthened over last two years. However, none of these problems do not concern problems.

There are also good news. It seems that the financial sector's deficit goes below 3 per cent and in June 2015 European Commission will withhold the excessive deficit procedure. And despite the fact that minister Szczurek didn't want to speculate over such scenario, due hard to foresee financial performance of local governments, this would be very good news before 2015. This would also be a good argument for the rating agencies to raise the perspective of the Polish credit worthiness and by the fact itself, help the domestic currency.

It is worth paying some attention to the petrol market. The recent oil sell-off is far higher than the increase of the dollar's value against the zloty. This means that the petrol should cost even less in the first weeks of the new year, especially given that the prices at the petrol stations are 0.20 PLN higher than the usual retail margin.

Today the zloty has been benignly falling since the morning. It is not excluded that the speculative capital, encouraged by no reaction from the NBP (Polish National Bank) to the Christmas commotion and acceptance of the weaker currency by the ministry of finance , is interested in the domestic market and intends to continue destabilizing the zloty. There are little chances, then, for the Polish currency to close December below 3.55 against the franc, and the euro should be quoted around 4.30 in the first days of the new year.

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.2250-1.2350 1.2150-1.2250 1.2350-1.2450
Range EUR/PLN 4.2800-4.3200 4.2800-4.3200 4.2800-4.3200
Range USD/PLN 3.4800-3.5200 3.5000-3.5400 3.4600-3.5000
Range CHF/PLN 3.5600-3.6000 3.5600-3.6000 3.5600-3.6000

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.5650-1.5750 1.5550-1.5650 1.5750-1.5850
Range GBP/PLN 5.4500-5.4900 5.4300-5.4700 5.4700-5.5100

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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 Sp. z o.o is prohibited.

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