July 26, 2016

This week in focus: Retail sales and industrial production data: a mixed bag  

While retail sales continued to grow, increasing by 5% y/y in June, fostered by strong internal demand, industrial production decreased by 3.4% y/y, weighted down by both external and internal factors. The figures are in line with our conservative year-end GDP growth estimate of 1.2%.

Currency market: No IMF makes near-term outlook for UAH uncertain

USD/UAH decreased to 24.77 on Monday the 18th, slightly lower than the last weeks level of 24.84.
In the light of the delay in IMF funds disbursement we would suggest that UAH appreciation has ended, whereas markets should expect wide fluctuations of USD/UAH in the 24.5-26.5 band. Our estimate for the end of 2016 stays at the 27.0 level.
EUR/USD decreased to 1.0973 on June 22, down from 1.1075 at the beginning of the week. EUR/USD 200 days moving average got stuck at 1.1 and demonstrated the smallest move than any other major currency pair.

Money market: Liquidity declines on tax payments

Banking liquidity amounted to UAH 98.2bn on July 18, slightly lower than UAH 98.4bn the week before. Unless the regulator will ramp up its FCY purchases, banking liquidity is likely to fall due to tax payments in the end of the month.
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 steady

On the last OVDP auction, held on July 19, cut-off rates remained steady. 6m and 1y bonds didnt attract any demand from market participants.
The rates are likely to decline in the nearest future, as the NBU is expected to cut the key interest rate on its Monetary Policy Committee meeting on the 28th of July.

Global markets: US shoots ahead as monetary stimuli are postponed

European and Asian policymakers decisions not to apply additional monetary stimulus pushed the US stocks and currency up while the rest of the world lags behind.
Safe haven bonds changed little throughout the week, proving the speculative nature of a recent Treasuries selloff.
S&P 500 reached all-time high, whereas European stock market gauge rolled back after reaching a four-week high on June 20.
ECB didnt change its monetary policy stance following the same decision of the Bank of England a week earlier.
Whereas the Emerging markets were weighted down last week by the strong USD, the Chinese Yuan surged above 6.7 per USD, stopping a 6 week long streak of losses.
Oil retreated to the lowest level in two month as the US driving season is coming to an end whereas oil stockpiles remain high.

For more information: UkrSibbank_26072016.pdf