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Daily analysis 14.08.2015

14 Aug 2015 13:16|Marcin Lipka

Weaker GDP readings from the eurozone have no major impact on the common currency. Today's Eurogroup meeting should be key regarding Greece. Historical weakness of the Turkish lira. The zloty remains stable after weaker than expected growth in Q2.

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

  • 15.15: Industrial production from the US (survey: +0.3% m/m)
  • 16.00: University of Michigan consumer confidence index (survey: 93.5 points)

Weaker GDP reading from the eurozone

The largest eurozone countries recorded weaker than anticipated GDP readings. France was at the bottom of the list. Paris announced a flat Q2 while economists expected a 0.2% growth q/q. Italy and Germany looked slightly better where the actual reading was just 0.1 of a percentage point lower than anticipated.

The whole euro area growth was +0.3% q/q and +1.3% y/y which was exactly 0.1 percentage point below economists' consensus surveyed by Bloomberg. The main problem in the data seems to come from low investment contribution. On the other hand, the export contribution looked good both in the case of Germany and France. The French data may slightly improve in the next quarter due to some inventories rebound which pushed the publication lower in the last three months.

Overall the GDP reading looks rather weak especially taking into account the strong monetary easing, falling commodities prices and lower euro effect. The culmination of all factors should at least produce results in line with expectations.

Eurogroup meeting and early election in Greece

More attention than GDP readings may be focused today on Greece. In line with expectations the parliament in Athens accepted the reform plan agreed in the working group meetings. Similarly to previous votes around 40 Syriza members were against the deal. Overall, however, 222 out of 300 MPs accepted the plan which paved the way to the 3rd bailout.

Some interesting comments were aired by the financial media shortly after the parliament agreed on the deal. Bloomberg reported that according to an unnamed government official after August 20th the Tsipras administration is going to announce a vote of confidence. It is hard to imagine that an opposition can support the government in this matter.

It looks like Tsipras will try to realize his preferable scenario. The Prime Minister, exploiting his record high popularity, is expected to push for a snap election and gain as many votes as possible. The voting will probably be announced fairly early. The longer Tsipras waits the higher the odds that the society may revolt especially that the austerity program may be the the harshest in Greek history.

In the following hours, the most important event will be the Eurogroup meeting. It is scheduled to start around 15.00 CET. Finance ministers are expected to give the green light to the European parliaments regarding the bailout program. The base case scenario is that the preliminary MoU is accepted but still the German stance is not clear. As a result, it is probable that talks between the finance ministers can be long.

Weaker lira

There are clear signs that talks between the AKP party backed by President Erdogan and republican CHP will not bring any success. There is also a slim chance that the AKP can make a deal with the other two parties. As a result, Ankara is expected to get ready for another election at the beginning of November.

Not only political issues put pressure on the Turkish currency, which is at its weakest in history both to the dollar and the euro. The TRY is also under pressure from the military operations being run in Syria and Iraq. There is also a terrorism threat in the country. Additionally, the interest rate hike perspective in the US puts weight on the lira. Turkey still has a high current account deficit around 6% of the GDP. With capital outflow, Ankara will have to use its currency reserves. Taking into account all the issues, further lira depreciation remains the base case scenario and the USD/TRY pair is more likely to reach 3.00.

The foreign market in a few sentences

The EUR/USD is traded at quite high valuations. The common currency, however, is still supported by the strong franc sell off to the euro and the overall dollar weakness which is caused by the yuan turmoil. However, if today's industrial production and consumer confidence data remain strong it will be much harder for the EUR/USD to stay around the 1.1150 level.

Weaker GDP but the zloty remains stable

The zloty is resilient to the most important data from the local economy. It doesn't mean, however, that market participants ignore them. Currently, the most important issue is Greece. Due to the fact that negotiations have gone smoothly the EUR/PLN may remain under the 4.20 mark.

Returning to the data the GDP reading was significantly weaker than the economists' expectations (+3.3% vs +3.6%). Due to the fact that in the flash estimate there is not a breakdown of the data, it is worth citing Maria Jeznach the director from the Polish statistical office (GUS). During the conference she suggested that the reading was weaker due to a lower result in production and trade. Jeznach, cited by the PAP, added that we still observe that the economy growth is at a stable pace.

In the base case scenario the zloty should remain under the 4.20 mark per euro and the franc around 3.85. However, if there are some stronger differences inside the creditors' camp the Greece issue may be lengthened. It would push the EUR/PLN above 4.20 and the franc even to around 3.90.

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

Range EUR/USD 1.1050-1.1150 1.0950-1.1050 1.1150-1.1250
Range EUR/PLN 4.1700-4.2100 4.1700-4.2100 4.1700-4.2100
Range USD/PLN 3.7600-3.8000 3.8000-3.8400 3.7200-3.8600
Range CHF/PLN 3.8400-3.8800 3.8400-3.8800 3.8400-3.8800

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 5.8400-5.8800 5.8200-5.8600 5.8800-5.9200

14 Aug 2015 13:16|Marcin Lipka

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:

13 Aug 2015 17:15

Afternoon analysis 13.08.2015

13 Aug 2015 13:33

Daily analysis 13.08.2015

12 Aug 2015 17:25

Afternoon analysis 12.08.2015

12 Aug 2015 12:54

Daily analysis 12.08.2015

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