Daily analysis 24.02.2015

Greece sends a list with reforms which are set to be accepted by finance ministers and local parliaments by the end of the week. What Yellen is going to say before the Senate Banking Committee? Catastrophe in Ukraine – only in February the currency slumped 50%. The zloty remains fairly stable. Cautious comments from Chojna-Duch.

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

• 16.00 CET: Semi-annual Monetary Policy Report for the Senate Banking Committee is scheduled to be published. Later Janet Yellen is supposed to answer Congresspersons questions on the monetary policy.

Greece sends the plan. Acceptance expected.

Athens sent to the eurogroup a list of reforms which are expected to unlock the financial assistance to the Hellenic Republic. According to what we wrote yesterday both sides left some room of manoeuvre and Greece's promises included very few numbers. But according to the most recent comments the plan will be probably accepted.

The Tsipras government promised to reform the public pension fund, tighten grip on VAT or better control the government spending. Greece also claims that it will not withdraw form the privatization plans and get more elastic on the salary negotiations.

Syriza also changed the view on the minimum wage hikes. Currently, the government claims that the changes will be discussed with “social partners” and “European and international institutions” and would be dependent on productivity and competitiveness changes.

According to the reform project, there are no data how large is going to be the budget primary surplus. The discussion regarding that issue was pretty fierce in the last weeks so it is quite surprising that no details were presented.

Currently we should assume that Tsipras government propositions are set to be accepted by finance ministers. The eurogroup chief was fairly positive regarding the Greek document and claims that more details are scheduled to be set during further work. Another step is the plan acceptance by the euro zone governments or parliaments. Handelsblatt claims that the German finance ministers send a request to the parliament to accept the 4-month extension for the Hellenic bailout program.

Summarizing, the plan is scheduled to be approved till the end of the week and for at least few months Greece should be dropped from the financial headlines.

Market focused on Yellen

Today at 16.00 CET semi-annual report on the Fed's monetary policy is scheduled to presented before the Senate Banking Committee. Later the FOMC chair Yellen will be answering Congresspersons' questions on future interest rates policy. The market, mainly, would like to get a hint when the first hike can occur.

Currently investors also want to know what will happen with the word “patience” which suggests that for at least two following FOMC meetings the rates should stay at current level. If Yellen tries to decrease its meaning or suggests plans to scrap it, the lift-off is on the horizon. It is an argument for dollar appreciation.

On the other hand, if chair Yellen remains fairly positive concerning “patience” and gives some remarks on lower inflation, issues abroad or too strong dollar then the odds for the first hike in mid year should diminish and the market can position itself for the September meeting. It would be dollar negative.

In our opinion the chairwoman would rather sound fairly neutral and do not to pre-commit the March FOMC meeting. However, if we were to pick any direction, it would be rather more hawkish approach with dollar bullish outcome.

Dramatic situation on the Ukrainian currency

On Monday the Ukrainian currency dropped 10% and the dollar first time in history was worth more than 30 hryvnias. Regarding the UAH slide the central bank returned to capital control. It didn't help to prevent further depreciation and today we are observing the additional 10% slide. The hryvnia lost half of its value in February.

Ukrainian hryvnia in the last year

Source: Bloomberg. USD/UAH going up means the weakening of the Ukrainian currency against the American dollar.

The economic situation in Ukraine is dramatic. The GDP dropped 15% y/y in 4th quarter, the monthly salaries dropped to 100 USD in many regions, many banks declared bankruptcy in the last year and the local currency slumped more than 75% since the Yanukovych was ousted last year.

Kiev has been currently waiting for the IMF financing approval. It will take at least few weeks when the real money comes from the fund. However, it does not change our view that Ukraine is set for bankruptcy no matter whether the cease-fire in the east works or not.

The foreign market in a few sentences

Today the market is going to focus on chair Yellen hearing. We expect that the Fed's chief will rather sound fairly neutral and her comments won't significantly impact stock market, currencies or bonds. However, if investors choose to destabilize the rates it would be rather dollar positive and would give some boost the yields.

The zloty is slightly stronger. Comments from Chojna-Duch

The local currency strengthened slightly after the Greek reform plan was published and the eurogroup chief gave some positive comments about the proposal. The changes, however, were fairly muted and the EUR/PLN is still trades between 4.16 and 4.18. The similar situation is observed on the CHF/PLN which is quoted slightly below 3.90.

Regarding the zloty it is worth noting Elżbieta Chojna-Duch comments. The key MPC member told Bloomberg that it is hard to predict the result of the March meeting. According to her view the monetary policy makers have to consider that the current decision will have an impact on the economy later and the current MPC term is ending, and “we would like to leave the economy well balanced”.

Chojna-Duch is also not concerned that foreign capital will “come pouring in” to Poland because of spread between the domestic and the euro zone rates. Both comments seem to be fairly hawkish and decrease the odds that the Committee cuts interest rates by 50 bps in March. If we see only a quarter percentage point cut and no signs for further easing in the statement it should boost the PLN.

Today the zloty should be traded between 4.16-4.18 level with a chance for the lower bound of the range test when the Greek plan is officially accepted.

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

Expected GBP/PLN levels according to the GBP/PLN rate: