July 11, 2016

This week in focus: Inflation readings favor rate cut 

Inflation rate slowed down in June 2015 to 6.9% y/y and -0.2% m/m, strengthening expectations of a moderate 1% key rate cut (currently at 16.5%) on the NBUs Monetary Policy Committee meeting on July 28.
Going forward, we would argue that inflation is set to start accelerating in the nearest future. Year-end inflation rate is expected to land at 14% y/y.

Currency market: USD/UAH  bounces back to 24.85

USD/UAH has been leveling off throughout the week and jumped up on Friday, July 8, closing at 24.85, driven by the strengthening USD.
We are keeping our projection that USD/UAH might move as low as 24.50 throughout the next 1-1.5 months, subject to IMF funds disbursement.
The outlook for the end of 2016 remains at bearish 27.0 level.
EUR/USD slid to 1.1038 on Friday the 8th after rebounding early in the week.

Money market: Liquidity retreats to UAH 95.4bn

Banking liquidity rolled back to early-week levels after a temporary rebound and landed at UAH 95.4bn level on Friday the 8th.
Money market rates didn't change: cost of ON funds is around 14.5/15.5%, indicative 1 week is 15/16% while indicative 1M is 16/18%.

Local debt market: Cut-off rates are expected to decline

The rates are likely to keep gradually decreasing on upcoming auctions as the NBU is expected to cut the key interest rate on its Monetary Policy Committee meeting on the 28th of July. 
On the last OVDP auction, held on July 5, cut-off rates decreased, although moderately. The cut-off rates declined by 0.7% for 1y bonds and by 0.1% for 5y bonds. This auction was the first one since the NBU had decreased the key rate on June 23. 

Global markets: Uncertainties cause wide swings

Global uncertainties caused markets to strongly fluctuate, however, exceptionally positive US payroll readings, which were released on Friday the 8th, generated a significant positive momentum.
Government long-term bond yields decreased further, pushed down by strong demand for havens, reaching near record lows.
Stocks rallied globally, with S&P 500 erasing all post-BREXIT losses, however STOXX 600 and MSCI Emerging Markets posted weekly declines of 5.5% and 1% respectively.
US added 287 000 jobs in June beating the consensus estimate of a 180 000 increase, removing the concern about the economy's health
The Chinese Yuan depreciated for a fifth week in a row, falling by 0.4% since July 1, whereas international reserves of the People's Bank of China unexpectedly increased by USD 13bn.
Oil fell lower than last week on news of decreasing US oil inventories and output.

For more information: UkrSibbank_11072016.pdf