Daily analysis 17.07.2015

Voting in the European parliaments should not bring a bigger disturbance before the start of negotiations regarding granting aid from the ESM program for Greece. The likelihood of monetary tightening in the USA in September is increasing. The zloty is stronger to the euro and franc before the important data from Poland.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

• 14.00: Retail sales from Poland (estimations: +7.0% y/y).
• 14.00: Industrial production from Poland (estimations: +3.6% y/y).
• 14.30: The CPI inflation from the USA (estimations: +0.1% y/y, excluding fuels and food +1.8% y/y).
• 14.30: Permission to construction works from the USA (estimations: 1.150 million).
• 14.30: Initiated investments in the real estate sector in the USA (estimations: 1.106 million).
• 16.00: Index of the consumers' sentiment from the University of Michigan (estimations: 96 points).
• 16.00: Testimony from Stanley Fisher, vice-chairman of the Federal Reserve, for the American Chamber of Commerce. It is not clear whether the direct references to the current American monetary policy will appear in the discussion.

Negotiations regarding aid from the ESM should start immediately

It seems that the discussions between the creditors and Greece regarding the 80 billion euro aid program will begin shortly. The parliaments of France and Finland gave the green light for starting negotiations. Bundestag should make a similar decision this afternoon.

It is possible that 50 parliamentarians from the CDU/CSU coalition will vote against the ESM (European Stability Mechanism). However, considering the support for the plan for Greece from the SDP, there are still 450-500 out of 631 parliamentarians in the Bundestag who will vote “yes”.

The other countries expressing their opinion regarding the start of negotiations with Greece, should not block this process. Thus, next week the working teams of the Eurogroup should begin to form specific arrangements of the ESM use by Greece.

What are the possible problems?

Considering the great interest of the general public in the matter of Athens, wide comments regarding the discussions between Greece and the creditors can still be expected. The reform plan presented last Monday is so brief that there is still much room for interpretation.

This on the other hand can cause the risk that the Greek government, as well as the Greek citizens, can begin to refuse the agreement from Brussels at a certain point. Another element of uncertainty is also the condition of Tsipras' coalition. It is very likely that a cross-party government of national unity will be formed, because some of the Syriza members who are against the initial reform will probably be fired from the party. Therefore, they will not support the further changes to the regulations.

There is also a risk that at a certain point the social discontent will cause street protests, which may result in new elections. Conducting elections during negotiations would be a serious danger for a plan established on Monday. Especially that an unsatisfied society could suddenly turn away from Tsipras and vote for even more populist representatives. This would take Greece very close to Grexit.

It is also worth noting that there is still no understanding within the creditors' camp. Europe and the International Monetary Fund (IMF) have different views on the Greek debt. The matter of erasing the liability of Greece will certainly be discussed in the next few weeks.

On the other hand, the progress that took place in the last few days should not go unnoticed. Additionally, even the sum of all above mentioned hazards does not impact the base case scenario, which is granting the ESM aid to Greece.

Fed is closer to the first hike

According to the latest expectations of economists published by “The Wall Street Journal”, 82% of respondents think that the first monetary tightening in the USA will occur in September. The others claim it to be in December (15%) or in October (3%). An interesting point is that none of the respondents claim that the Fed will leave interest rates on a level of 0-0.25% at the end of the year.

On one hand, it is of course positive for the dollar. Sooner hikes should generate a demand for the American currency and cause a decrease in the EUR/USD. On the other, if the macro data from the USA are weak in the next two months, the Fed does not have to be as eager to begin the monetary policy tightening by the end of the third quarter. In this case, a turn of the long positions on the USD can cause a sudden decrease in its value.

Few words about the foreign market

The market should rest for a while from Greek related issues. Today, the investors should take notice of the macro data from the USA. Inflation readings, condition of the real estate markets, and the consumers' sentiments on the other side of the ocean, will be considered only in the context of the first hikes in interest rates. Thus, a series of worse data means a chance for a decrease in the American dollar's value and good readings may result in risk of depreciation of the EUR/USD even below 1.0850.

National economy in the centre of attention

Today investors should finally concentrate on the national data. According to the Bloomberg agency, median of expectations regarding the reading of the industrial production from Poland is +7.0% y/y. It is worth noticing that there is a very big discrepancy in estimations – from 3.6% to 9.0%. The expectations of the Ministry of Economy can be a certain hint. It estimates +6.0% y/y, although it often makes mistakes in estimations.

However, one can generally say that the publication between 6.0-7.0% should be neutral for the zloty. A visible reaction (0.01 PLN or more) can be seen when the production is below 5% y/y or above 8%.

A similar situation concerns the retail sales for June. Median of expectations is 3.6%, but the range of estimations is also relatively big – between 1.5% and 5.2%. If both or these readings cross the estimations by over 1 percent, the EUR/PLN can end this week even below 4.09, and the franc can find itself very close to the area of 3.90.

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

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