Daily analysis 21.08.2015

According to expectations, Tsipras decides to conduct earlier elections. The PMI readings from China are the worst for 77 months, but the publication from the eurozone was good. The market anticipates a testimony from Stanley Fisher next weekend. The EUR/PLN pair remains close to 4.20, but in general the zloty is stable.

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

• 15.45: The industrial PMI from the USA (estimations: 53.8).

Tsipras follows the plan

Rumours regarding the resignation of Tsipras and an attempt at earlier elections have been appearing for a few weeks. This should not be a surprise for the markets. A matter of forming a new group by the extremely left part of Syriza was also considered.

The creditors also knew about this plan, and it is possible that they even supported it. This theory can be confirmed by the statement of the Brazilian President Dilma Rousseff from her meeting with Angela Merkel. After the meeting with the chancellor, she told the reporters that “Tsipras' resignation is a part of the plan, not part of the crisis”.

The plan is probably to enforce Tsipras' authority. Currently, every voting regarding the reform requires the support from the opposition, because the extreme part of Syriza was not willing to support the compromise with the creditors, nor another savings' package.

However, convincing the society to support the deal with the creditors, will be the greatest challenge for the current prime minister. Tsipras claims that he is the only one who can negotiate better conditions, and the rest are not capable of governing due to their past oligarchy connections. This however may not be enough in the future, especially when the current supporters of the prime minister will begin a rigid campaign and increase their support.

Currently, however, the base case scenario which is the re-election and formation of a government closer to central views, is most likely. According to a recent survey conducted in July by Metron and quoted by “The Financial Times”, 61% of respondents support Tsipras, and 34% of them support Syriza. Of course, this survey was conducted before the announcement of the details of the Greek reform and also today's departure of 25 parliamentarians.

Weak results from China and not bad from the eurozone

The main event at the Asian session was the publication of very weak readings of the industrial PMI from China. A study of the industry's condition conducted by Markit and Caixin, shows a decrease in the index down to 47.1 points. At the same time, it is the worst reading for 77 months. There is no comment in the initial reading, but according to the information from Markit, the pace of production, new national and foreign orders and also employment have decreased faster than previously.

One can come to completely opposite conclusions, after getting familiar with the readings from the eurozone. Basically only France disappointed. The condition of Germany and the eurozone in general have improved in comparison to the previous reading. In his commentary on data from behind our western border, Markit's economist writes that “in August the German private sector moved up to a higher gear, along with the fastest in 4 months an increase in production and new orders”. Oliver Kolodseike adds that “the pace of creating new workplaces is at the highest since the end of 2011”, and that he expects Berlin to develop in the third quarter on a level of 0.4% q/q.

Previously, after worse data from China, the market expected a bigger fiscal and monetary stimulation from Beijing. It can be different now. The investors may fear that the renminbi will continue to devalue, and the perspective of hikes in interest rates will become more distant. This is negative information for the dollar.

Apart from the USD wear off also a reverse of the carry trade positions fuels increases in the main currency pair. However, it is worth noticing that these reverses are smaller than it was in the case of the yen or franc. Thus, appreciation of the euro caused by worse macro data from Asia, can quickly lose strength, especially when it begins to reach the publications from Europe, and the opinions about the necessity of a deeper monetary stimulation in the eurozone appear.

Few words about the foreign market

The reverse in carry trade positions on the euro and the decreasing chance for hikes in interest rates on the other side of the ocean, caused further depreciation of the EUR/USD. However, the market is very nervous, and if we receive solid publications from the other side of the ocean, or relatively hawkish statements form the Federal Reserve members next week, a significant part of this movement can be reversed.

Next weekend's testimony from Stanley Fisher at his conference in Jackson Hole will also be important. Vice chairman of the Fed will speak about inflation in the United States. The condition of the American currency depends on how Fisher will receive its upcoming decrease, related to record low prices of raw materials (will they translate on the base case reading).

The zloty remains stable

Strong commotion on the main currencies and the most sudden sale of the emerging markets' currencies, has had a relatively small impact on the zloty for a few years. Due to the appreciation of the euro on the global markets, the European currency costs approximately 4.20, but the dollar or the pound are now cheaper than in the previous days. Quotations of the franc are also relatively stable.

Thus, our expectations regarding the zloty being partly considered as a safe coast in comparison to the currencies of countries touched by a decrease in raw materials, or China with deteriorating economic situation, are confirming. For the time being the scenario of stabilisation does not seem to be endangered, and the basket of the zloty consisting of the main currencies should be stable. Changes on particular pairs will mainly be caused their changing evaluation on the international market.

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

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