Afternoon analysis 26.05.2015

The dollar increased as the industrial order and housing market data showed some improvement. Grim sentiment in the markets as the future of Greece is getting more unpredictable. The zloty moved lower as the risk aversion was mounting. Frank moved above 4 zloty.

Today's data from the United States surprised positively. The report on durable goods orders was better than it was forecast. The growth excluding transportation equipment stood at 0.5 percent - more than plus 0.4 percent that was projected. Moreover, the overall growth of orders stood at minus 0.5 percent. A result above minus 0.6 percent that was forecast.

Some improvement in the readings may suggest that the slowdown in the first quarter was only transitory. Still, more data is required to confirm, whether this observation is valid.

In addition, the report on housing market also exceeded the forecast. The S&P / Case-Shiller index – a measure of house prices in the US largest cities – stood at 5 percent on a yearly basis. Clearly, a result in above 4.6 percent that was expected.

The data suggest, that the US housing market expansion remains solid in spite of the coming interest rates hikes and rising credit costs as a result. This factor may suggest that the consumption will improve as the wealth effect is strengthened.

The Federal Reserve chair Janet Yellen indicated last Friday that the deterioration in the US economy expansion pace is not sufficient to worry the monetary authorities. As a result, although there will be no interest rate hikes in July, the fall term is sill considered. Thus, the dollar may return to appreciation as the outlook for sooner interest rate increase will be strengthened.

Greece pressured the euro

The common currency remained under the influence of the anxiety concerning the future of Greece. The nation is expected to pay the 300 million euro International Monetary Fund bill due in the next week. The latest comments from Athens are rather inconsistent and give no clear view whether the Alexis Tsipras's government is willing to make the payment.

Today the Greek politicians will talk with the European Commission and the International Monetary Fund officials. The talks are scheduled to be continued tomorrow. In the last week, the leaders of France and Germany set the end of May as a final deadline for Greece to sign an agreement with the international creditors.

Next to Greece, Spain is a potential risk source for the markets. The Mariano Rajoy's party defeat in local elections spur speculations that the nation will follow the path of Greece. General elections scheduled in November may send the Spanish equivalent of the Greek Syriza - the Podemos party - to power.

The mounting uncertainty affected investors in the bond market. The investors were selling the South debt and buying the core eurozone countries bonds. The Swiss franc also increased. A few calming comments from the European Commission president Jean-Claude Juncker has not improved the atmosphere. In addition, Bloomberg cited the European banking sector officials who pointed at limited risk of contagion effect.

Weaker zloty

The sentiment towards risk assets remained under the influence of the anxiety concerning the future of Greece. The Polish currency posted gains against all its major pairs. The level of drop is larger than in the case of other currencies in the region. It was caused by an unfavorable reaction of international investors on the presidential election outcome.

Moreover, the data on industrial production and retail sales published in the last week missed the forecast. Since then, the zloty has remained under the pressure. The overall assessment of the Polish economy was not lifted by today's data on the unemployment rate that dropped to 11.2 percent. It was the lowest level in almost six years.

The anxiety concerning Greece is responsible for risk aversion in the broad market and the aversion towards risk assets. Given the situation, the zloty increase is not very possible. Until the Greek uncertainty prevails, the zloty will remain under pressure.