Afternoon analysis 30.12.2014

ECB data on private credit still negative. Greece less influential than expected. The zloty rose in spite of lingering risk aversion.

The European Central Bank said that the M3 money supply rose 3.1 percent on a yearly basis – more than 2.6 percent anticipated by analysts. In the previous month the broadest money aggregate rose 2.5 percent.

However, in today's data the most important figure was private credit development. In this field there was no breakthrough – credit for households and companies fell 0.9 percent from the previous year, in line with expectations. It is little comforting that it was better result than the 1.1 percent drop in the previous month.

By many occasions Mario Draghi pointed at heightened risk aversion – materialized in lower credit demand – as a one of the major factors that impedes the recovery of euro zone economy. In spite of cutting the interest rates at record low and conducting two TLTRO tenders (influence of September's tender should be apparent in November's data) the disaffection to credit is still persistent.

Especially credit for companies is falling – it dropped 1.6 percent, more than 0.4 percent in the case of households. Nevertheless, the pace of drop is lower than it was in two previous months – 1.8 percent in October and 2 percent in September.

Sudden economic breakthrough in the euro zone is not possible. Thus, the ECB wiggle room is becoming more narrow and it will eventually introduce full quantitative easing it the first quarter of 2015. The asset purchases program that includes government bonds proved its efficiency in the United States and the United Kingdom, and it may add to faster recovery in the euro zone after other measures didn't give expected results.

Greece with little impact

The failure of Greek parliament to elect president resulted in snap election. Prime minister Antonis Samaras proposed January 26 as a vote date. Earlier, this was seen as a factor that will hit the euro as the Syriza party that is leading polls was considered a threat for political stabilization. The party said it will renegotiate bailout and undo some reform that were deteriorating households' income.

However, the recent polls showed melting support for Alexis Tsipras's party – it narrowed to 3-6 percent from above 10 percent. As a result, the odds for taking the power by Syriza are lower than few weeks ago. Nevertheless, this factor will surely influence the euro if polls show a significant increase of support for Syriza.

Italian debt with record

The outlook for the European Central Bank buying government bonds is helping to lower yields on public debt securities. Today Italian government sold its bonds with the lowest yield in history – it stood at 1.89 percent – less than 2.08 percent during previous tender.

According to Bloomberg data 2014 was the best year for the European bonds since 1995. If the ECB eventually launches the QE, this asset class may extend its gains.

Stronger zloty

The zloty rose is spite of lingering risk aversion in the markets. The Polish currency extended gains from Monday even as stock fell in the US and Europe.

After some significant losses in the previous week, the Polish currency may be tested by speculative investors who may try to exploit lower liquidity in the market due to new year holiday period. However, the chance for a similar scenario is smaller after comments from finance minister Mateusz Szczurek, who said that heightened volatility is a negative for the economy. That is a signal of possible intervention of BGK if volatility increases.

The zloty's depreciation was caused by speculation. Thus, one can expect that the Polish currency will try to recoup its losses. This move may be influenced by a return of speculation, but the trend will probably remain unchanged.