July 19, 2016

This week in focus: Ukrainian Eurobonds traded at par despite delay with IMF review  

Last week prices of 3y and 5y Eurobonds climbed above 100 while yields tumbled below 8%. This development might be viewed as the premise for a US-guaranteed Eurobond placement in 4Q 2016 on the back of the upcoming completion of the IMF review.

Currency market: USD/UAH fluctuates above 24.8

USD/UAH decreased to 24.84 on Monday the 18th, slightly lower than the last week highest level of 24.85.
We are keeping our projection that USD/UAH might dip to 24.50 throughout the next month, whereas the outlook for the end of 2016 remains more bearish at the 27.0 level.
Short-term UAH appreciation is subject to the disbursement of IMF funds, whereas, judging from the remarks of IMF officials, it is possible that the completion of the second EFF review might be postponed till September.
EUR/USD closed at 1.1076 on Monday the 18th, after peaking at 1.1120 on June 14 and higher than the last weeks closing level of 1.1035.

Money market: Increased liquidity contributes to high demand for govies

Banking liquidity climbed to UAH 99.2bn on July 18, higher than USD 95.4 the week before. Without FCY purchases by the NBU liquidity is unlikely to increase further.
Money market rates didnt 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 on a 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

On the last OVDP auction, held on July 12, cut-off rates declined and are likely to keep decreasing, as the NBU is expected to cut the key interest rate on its Monetary Policy Committee meeting on the 28th of July. 
Global markets: Resilience in the midst of shocks
World markets demonstrated their strength in spite of a terror attack in Nice and a failed coup attempt in Turkey. Global stocks recovered from the meltdown caused by the BREXIT vote, whereas demand for heavens decreased on policymakers claims to prop-up the world economies with additional stimuli if need be.
Demand for sovereigns ebbed with yields on US, German and Japanese 10y bonds gradually increasing.
While the S&P 500 reached record highs, European stocks rally halted in the wake of the terror attack in Nice, also dented by corporate earnings, in spite of some pressure being alleviated due to the new British government stepping in office.
The Japanese yen demonstrated the steepest decline in 17 years on the governments stimulus reassurance, while most of other Asian currencies have been pushed down by the strengthening USD, with the Chinese Yuan falling to its lowest level since 2010.
As shipments through Turkey remained uninterrupted, global oil benchmarks extended losses.

For more information: UkrSibbank_19072016.pdf