Daily analysis 25.06.2015

Are the creditors giving Greece an ultimatum? Long negotiations are not giving any results. It is possible that the discussions may be extended to the weekend. The SNB reminds about re-evaluating the franc, and possible interventions. In the short-term the zloty is dependant on Greece.

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

• 13.00: Beginning of the Eurogroup meeting regarding Greece
• 14.30: Arrival of the officials at the European Union summit
• 22.00 (approximately): Press conference of Donald Tusk and Jean-Claude Juncker after the first day of the EU summit

Ultimatum?

A few minutes before 11.00 CET The Financial Times published some information, saying that Greece had received an ultimatum from its creditors. The country must present “a real” proposition of reform. If it does not, Greece will receive the creditors' plan for acceptance at the Eurogroup meeting (13.00 CET). If Athens does not accept it, the negative scenario may be in progress.

However, the above information was quickly “softened” by the statement from the Austrian minister of finance. He claimed that the EU leaders had given the Eurogroup time until 16.00 CET to come up with an agreement with Greece.

It is worth noticing that neither the Eurogroup meeting nor the two-day-long summit of the EU representatives may bring any breakthrough. Considering, how often the crucial dates have been postponed, it is possible that the breakthrough may appear at the weekend. If even then the standpoints of both sides will appear discrepant, the negative scenario may be in progress.

It would be based on the likelihood of adopting the flow control already on Monday. Thus, the risk sensitive assets (shares, peripheral bonds, the euro) would visibly be overvalued before the weekend, despite the fact that the market continues to assume a consensus between both sides.

This approach is not unreasonable. First of all, there is still a political will to keep Greece in the eurozone. Second of all, the recent Greek propositions are significantly more reasonable, than those presented over the past few months. The most problematic matter is the method of reaching the initial budget surplus.

Athens concentrate more on increasing taxes. Troika on the other hand, wants to reform the pensions system faster, eliminate the privileges, and simplify VAT. Of course, the creditors' offer is more reasonable. However, meeting each other halfway should be satisfying for both sides.

In conclusion, the agreement is still the base case scenario, despite the fact that the threat of adopting the control of capital flow has increased. The forthcoming hours or the weekend will be crucial. It is also possible that both sides will agree only for an extension of the current program. However, this may not be enough for Greece to stop being at the centre of investors' attention, and impact their global decisions.

The SNB about the franc and interventions

This morning at his meeting with the group representing the business of the watch producers, Thomas Jordan said that the franc is “significantly” overvalued. Also, the chairman of the Swiss National Bank (SNB) claims that the bank is ready to undertake currency interventions, in order to wear off the franc.

References to the CHF rate and the interventions are not coincidental. Despite the fact that Jordan considers Greece remaining in the eurozone as the base case scenario, the SNB readiness for action can prevent the positions to cumulate on the franc.

Additionally, if during the current market tension the Swiss currency will remain stable, it can significantly wear off when the situation will calm down. It will even cause the CHF/PLN to go below 3.90 at the beginning of July.

Few words about the foreign market

The forthcoming hours and weekend will be crucial for Greece. If there will be no breakthrough today, the aversion towards risk can visibly increase before the weekend. It will probably also overvalue the euro, even if the market will receive a clear message of further discussions to continue on Saturday and Sunday. The agreement remains the base case scenario. It can take a similar form to what we saw in February, or the program will end, and Greece will receive the expected aid.

The Zloty under Greek pressure

Extending negotiations regarding Greece can negatively impact the zloty. Increasing likelihood of the discussions to be continued during the weekend is generating a visible risk of the PLN wear off in the forthcoming hours.

Thus, if the forthcoming hours or tomorrow will not bring the standpoints closer (it is becoming the base case scenario), the investors will try to reduce the positions on hazardous assets before the hypothetical discussions on the weekend. It will also impact the evaluation of the zloty. Despite the fact that the negotiations may be continued, this week may even end in the area of 4.20 per euro.

On the other hand, if the consensus will be achieved before the weekend (the chances are decreasing), the EUR/PLN may quickly drop to the area of 4.13-4.14, and the CHF/PLN will quickly go 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: