Aug 23, 2016

This week in focus: Latest economic data supports positive year-end projections 

July 2016 readings of retail sales showed a 4.5% y/y growth whereas industrial production grew by 7% m/m despite still being 0.2% lower than in July 2015.
This data suggests that the Ukrainian economy is steadily recovering and underpins our year-end GDP growth projection of 1.2% y/y.

Currency market: USD/UAH at 25.25 local currency on course to depreciate

USD/UAH climbed to 25.25 on August 19 the local currency has depreciated the most against the USD since June 1, 2016.
The official schedule of the IMF Board is filled till the end of August, which moves the possible conclusion of the EFF program review further into Autumn.Widely circulating information that the failure to correctly launch an electronic asset declaration system which happened on August 15 - could derail the IMF program still hasnt been confirmed by any official international sources, therefore it is possible to draw only vague conclusions at this point.
EUR/USD increased to 1.1325 as of August 12, as the USD swings between gains and losses.

Money market: Declining liquidity to be weighted down further

Aggregate banking liquidity slumped to UAH 90.64bn on August 19. Going forward, liquidity is likely to be further weighted down by tax payments that are due in the end of the month, and will not recover if the NBU doesnt increase its FCY purchases.
Money market rates remained level: cost of ON funds is around 13/14%, indicative 1 week is 14/15% while indicative 1M is 15/18%, according to our data.

Local debt market: Rates on a decline as demand rebounds

Last week two government bond auctions were held, one of which was an unscheduled placement of USD-indexed OVDPs.
Demand of the last weeks auctions substantially exceeded our projections and underscored investors sentiment to hedge against FX risks as they bought USD 386mn (equivalent to UAH 9.25bn) of FCY bonds and UAH 1bn of USD-indexed bonds.
MinFin managed to push down the yield curve, as cut-off rates decreased for all maturities.

Global markets: Uncertainty over FED policy moves the markets yet again

Recent hawkish comments by FED officials that contrasted the latest FOMC meeting stoked the debate regarding the possible rate hike in 2016. Global stocks and bonds halted their recent advances while USD gained ground. Yields on US treasuries, German and Japanese bonds increased.
S&P 500 slipped by approximately 0.1% throughout the week, as investors are becoming increasingly concerned regarding future earnings, whereas STOXX 600 suffered a selloff, losing 1.7% throughout the week.
MSCI Emerging Markets index had to roll back from its highest level since July 2015, as Emerging markets stocks received a hit form the strengthening USD,
Oil has been extending gains throughout the week as speculations regarding the OPEC September meeting persist.

For more information: UkrSibbank_23082016.pdf