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Afternoon analysis 09.07.2015

9 Jul 2015 17:09|Artur Wiszniewski

Relatively dovish stance of the Federal Reserve supported risk taking. Creditors are waiting for the Greek reform plan. The zloty rebounded after the weak start of the week.

Today's data on the US labor market missed the forecast. The number of unemployment claims increased from 15k to 297k – clearly a higher result than the 275k that was projected.

However, the figure remained below the 300k level for 18 straight weeks. It was the longest streak since 2000. The report signaled that the labor market performance is still good. Nevertheless, given the recent report on the labor market situation, there were a few signals that the growth is getting relatively weaker to the latest quarters.

In the context of yesterday's minutes from the Federal Open Market Committee, the report was not in favor of the dollar. As the labor market expansion is getting milder, the outlook for interest rate hikes is getting more vague. The FOMC minutes showed that only one Fed member was considering interest rates hikes, but he decided to wait. However, the San Francisco Fed's John Williams still sees two hikes this year.

Greek plan

Greece has until midnight to bring a new plan that includes the expectations of the nation's creditors. The major challenges are the pension system reforms and the tax system overhaul. There are also expectations the creditors to agree on some form of debt relief.

The information agencies said the Greek government will propose cuts that add up to 12 billion euro. The amount is larger than previous offer.

In a response to a debt relief call, the European Council President Donald Tusk said the creditors have to ensure the Greek debt will be sustainable. Implicitly, the statement was a call to restructure debt. Earlier, the International Monetary Fund Managing Director Christine Lagarde said, Greece needs both financial help and debt reduction of about 60 billion euros.

As a result, the German government was pressured to make concessions in this field. But later, the German Chancellor Angela Merkel rebuffed any debt reduction. However, it is undecided whether there will be other forms of debt relief that will allow Athens to repay its debt. The maturity of debt may be longer or the interest rate would be lowered.

On Friday, the Greek reform plan will be the most important factor to watch. If the proposal is satisfying, the risk appetite will be strengthened.

Zloty's rebound

On Thursday, the zloty rebounded after severe losses at the beginning of the week. The Polish currency increased against all its major pairs.

If there is some progress in the Greek standoff, the zloty may continue to rise. And in the case of an agreement on Sunday, the zloty will probably extend gains. The zloty was helped by the quite dovish minutes from the Fed.

However, the situation in China is problematic for the emerging market currencies. This factor has been negatively affecting the risk assets since the beginning of the week. Moreover, if there is no agreement on Sunday, the zloty will decline. The latter is, however, not very likely.

9 Jul 2015 17:09|Artur Wiszniewski

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 acknowledgement of the source is prohibited.

See also:

9 Jul 2015 14:07

The zloty index by Cinkciarz.pl. July 2015. Part 2

9 Jul 2015 14:01

The zloty index by Cinkciarz.pl. July 2015. Part 1

9 Jul 2015 13:30

Daily analysis 09.07.2015

8 Jul 2015 17:29

Afternoon analysis 08.07.2015

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