Daily analysis 31.07.2015

Unclear impact of yesterday's GDP reading from the USA. Tsipras wins a clash inside his party. The International Monetary Fund may not participate in the first part of aid for Greece. A decision regarding the interest rates in Russia. The zloty looses to the euro. The franc is stronger due to the data from the SNB.

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

• 14.30: Index of employers expenses from the second quarter (estimations: +0.6%).
• 15.45: The PMI from Chicago (estimations: 50.8).
• 16.00: The final reading of the consumers' sentiment index from the University of Michigan (estimations: 94 points).
• Monday at 9.00: The industrial PMI from Poland (estimations: 54.4 points).

Is the GDP good or bad?

Yesterday's reading of the GDP from the USA caused quite a lot of commotion. First of all, data from the second quarter was worse than estimations (+2.3% vs +2.5%). Second of all, the publication for the first quarter was reviewed from +0.6% to minus 0.2%. If the announcement ended this way, the general data would be considered as positive.

However, the Department of Commerce reviewed the value of an increase in the GDP for the last three years. Changes for 2013 look the least positive. The economy was then developing at a tempo of only 1.5%, instead of increasing to 2.2%. In the years 2012-2014, the American GDP was growing at the average tempo of 2.1%, while before Wednesday’s review it was 2.4%.

In conclusion, it can be stated that the American economy produces less goods and services than expected. On the other hand, the last four quarters appeared to be better than expected. As a result, the readings are to be considered as rather neutral in context of the future decisions of the Federal Reserve. This is the way that the market participants should receive them.

Tsipras gains points, but the IMF is moderate

During yesterday's congress of Syriza there was some information that the voting regarding the creditors' reforms accepted by Tsipras, will initially be held on Sunday. However, the Prime Minister managed to convince the others that the evaluation of the program and himself, should take place in September. In this way the danger of earlier elections occurring during the negotiations with the creditors decreased significantly.

Certain problems appeared among the creditors. “Financial Times” unofficially informs that the IMF may not participate in the third aid program for Greece. According to “FT” the IMF board of directors claims that “a high level of debt and a weak history of adopting reform, disqualifies Greece from the third aid program”.

This can generate problems in Germany, which regard adopting the final aid program from the ESM by the Bundestag. On the other hand, it will be difficult for the European creditors, to withdraw from their conditions of aid now. Thus it is possible that the eurozone will have to “reach deeper into its pocket”.

Russia cuts interest rates

Basically every decision undertaken by the Russian Central Bank (CBR) can be interpreted as negative. Twenty percent of depreciation of the rouble from mid May, caused by the overvalue of oil, has generated problems which are very well known in Moscow. These are a danger of higher inflation, worse balance on the current account, worse economic growth and the return of speculators to the currency market.

If the interest rates remain unchanged, the monetary authorities will concentrate on the reduction of inflation. This would mean a slower increase in the GDP, and more problems for companies in gaining money.

On the other hand, cutting interest rates by 50 base points (according to the market's expectations) and their depreciation to 11.00%, will expose the CBR to accusations that the situation may again go out of control. Thus, before we see an improvement on the oil market, the rouble should be under serious pressure, irrespective to the CBR actions.

As a result, the CBR decided to decrease interest rates according to the plan. This caused a slight wear off of the rouble to the dollar. However, the monetary policy will not be a main element in the evaluation of the rouble. Basically in the scenario of frozen conflict in the east of Ukraine, the only thing that counts for the Russian currency is the evaluation of oil.

Few words about the foreign currency market

After the slightly more hawkish announcement of the FOMC, and mixed data regarding the GDP from the USA, the main currency pair continues to wait for additional impulses. Today, however, it will be neither the expenses of the American entrepreneurs, nor the PMI index from Chicago which recently do not relate to other accelerating indexes on the other side of the ocean. Monday's data regarding the industrial ISM can be enough of a sign for the bigger movements on the dollar.

The zloty is weaker to the euro and franc

Yesterday afternoon the national currency did not manage to work off the losses to the euro, and the EUR/PLN is currently moving in the area of 4.14. Tension on the market of emerging currencies, especially those dependant on the export of resources, should not have a negative impact on the zloty especially to the euro. Additionally, decreases in the prices of oil are clearly improving the current account from Poland. Mild monetary tightening in the USA is also not an argument to sell the zloty to the euro, but to the dollar. Thus, the recent increases of the EUR/PLN by 0.02 PLN are probably temporary.

The situation on the franc looks different. Recently the Swiss currency increased its variability to the euro. First it wore off to the euro, and now it returns to below 1.06. Today, the SNB informed that in the first half of 2015 it lost over 50 billion francs related to keeping the bonds evaluated in the euro. This may stop the SNB from the deeper interventions in the nearest time. In the short term this may cause pressure on an increase in CHF/PLN and maintenance above the limit of 3.90.

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

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