The market opened weaker than were Friday’s closing levels

Due to renewed fears that snap elections could be held soon, the market opened at the levels of 3.8850 EUR/PLN and 3.1910 USD/PLN that were gently weaker than Friday’s closing. Just after the opening of the session the unit made an attempt to break a key resistance at 3.90 EUR/PLN but failed to cross this level. It is worth reminding that on Saturday the PiS leader announced that his party would submit a motion to dissolve the parliament. As the PO declared not to support this proposal, it is unlikely that it will result in the shortening of the parliament’s term. In this context the Kaczynski’s party will have now two options.

The first would be to withdraw support for the Marcinkiewicz's government, but the PM said yesterday that he would not resign in the motion fell in an upcoming vote. The second option would be to build a broader support for the government, by offering seats in the government to populists from Samoobrona and either from LPR or PSL. This solution seems to be the most likely now. The pros of this option are that it could be easier for the PiS to control its allies sharing some power and responsibility with them.

The major risk is that the populists could be obstructive during the works on 2007 budget. Even though from our perspective such a behaviour is not predetermined this could be particularly worrying in the context of the Samobrona’s leader Andrzej Lepper statement from Monday, that he would favour to bloat the budget deficit over the next three years to boost employment. He also pointed out that the zloty was too strong, and he would see the unit close to 4.50 EUR/PLN to be profitable for exporters.

Currently it is hard to say how determined Lepper is to stick to this view, but we would expect some metamorphosis of the Self-Defense chairman, once his gets an invitation to the government. The second problem would be also the position of the deputy PM and minister of finance Zyta Gilowska who declared a month ago that she would resign if the Samoobrona got a position in the government. Domestic politics should stay in the spotlights today and as the calendar of economic releases remains empty. The second market driver will be the general sentiment toward emerging markets.

(CSOB - Investment research)