Afternoon analysis 05.02.2015

ECB's Greece action only briefly influenced markets. The zloty gave away some its yesterday's gains. The US reports finally better than expected.

The European Central Bank decided to limit access to liquidity for financial institutions in exchange for Greek bonds. This move was motivated by the uncertainty whether the country fulfills its obligations stemming from bailouts program that ends this month. Although Syriza dropped its plan to write down debt, the party canceled privatization program and plans to increase spending.

The ECB accepts only high quality assets as a collateral, but there was an exception for Greece and Cyprus due junk credit rating of these countries. As a result, the both of them were able to remain in the Eurosystem and to take part in quantitative easing program.

However, this decision has a limited influence on Greek banking system – creditors usage of government bonds as a collateral is rather narrow and they posses enough high quality assets in their balances (a broader view in our morning commentary). Thus, the reaction of investors was nervous only for a brief moment, and later markets have stabilized.

Bailout program in Greece ends this month. The ECB is trying to pressure Athens to extend the program as the country may run out of money after resigning from external support. The country's banking system is not strong enough to finance government's needs not only due to shut off from the Eurosystem, but also due to deposits outflow (Greeks withdrawn 15 billion euros).

The developments in the euro market showed that investors are not worried by the Greek turmoil. The impact of mounting country's problems is visible only in the Greek stock exchange and bond market.

Some improvement of US reports

After series of poor data from the US economy, today we received few better reports. The number of unemployment claims stood at 278k – less than expected. Moreover, the labor cost increased 2.7 percent in the fourth quarter of 2014. That will add to demand pressure, what will result in higher price growth.

Tomorrow the monthly report from labor market is due. The data will rather support case for the Federal Reserve to increase interest rates in mid 2015. As a result, the major reason for a strong dollar will remain valid.

The zloty weakened

The Ukrainian crisis is escalating. Currently the chance for any peace agreement is very low. As a result, the negative sentiment will prevail. In addition, Russia faces growing economic problems and some rebound in oil price in last few days can't change the overall picture of the situation.

Increase of risk aversion resulted in a weaker zloty – the currency gave away most of its yesterday's gains against the pound and the euro. It was little changed against the frank and the dollar.

The zloty's appreciation potential was deteriorated due to Greek turmoil and the situation in Ukraine. In addition, the MPC said it will cut rates in March. However, the zloty will rather gain in the near term, but the move will be more limited.