July 4, 2016


This week in focus: Solid BoP figures, weight shifting to capital account 


BoP showed a USD 374mn surplus while the current account demonstrated a surplus of USD 407mn. 
Adverse external conditions are set to erode the current account in near future, but substantial inflows into the financial account in the second half of 2016 will be sufficient to support the economy.
We would argue that the year-end GDP growth estimate of 1.2% is justified as well as the USD/UAH rate at 27 level.


Currency market: USD/UAH - heading towards 24.8


USD/UAH has been gradually moving down to 24.8 level, closing at 24.8225 on Friday, July 1.
Average daily USD sales volumes surged this week comparing to the week before, amounting to USD 223.4 mn.
EUR/USD had dropped precipitously on the news of the outcome of the BREXIT vote on June 24, but managed to regain some ground closing at 1.1136 on July 1.


Money market: Policy easing drives the money market rates down


Banking liquidity ebbed slightly below UAH 100bn and landed on Friday the 1st at UAH 94.8bn level. Liquidity is likely to rebound since the regulator is expected keep purchasing CCY.
Money market rates decreased, following the NBUs rate cut: cost of ON funds is around 14.5/15.5%, indicative 1 week is 15/16% while indicative 1M is 16/18%, according to our data.
Further rate cuts by the NBU are very likely to be made on the next meeting of the Monetary Policy Committee on July 28, after international financing will be unlocked.


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


The next OVDP auction is scheduled on July 5. Cut-off rates are very likely to be lowered by MinFin, weighted down by the lower key rate. 
On the last auction cut-off rates for 3m UAH bonds stood at 16.20%, for 1y bonds at 16.85% and for 5y bonds at 16.75%. 2y USD-denominated bonds saw the cut-off rate at 7.45%. 


Global markets: Pairing losses after BREXIT


Global markets are rebounding from the calamity that was set off by the UKs vote to leave the EU that took place on June 24.
GBP fell to the lowest point in 31 years with GBP/USD at 1.3121 on June 1. Credit ratings of both the UK and the EU were cut to AA.
Bonds and stocks soared globally, underpinned by promises by central banks to mitigate the possible fallout of the BREXIT referendum.
Implied probability of a FED rate cut in 2016 fell below 10% due to possible implications of the BREXIT vote.
Chinese Yuan declined to the lowest level for the last 10 years, whereas manufacturing declined.
Oil is still oscillating around USD 50 per barrel threshold.


For more information: UkrSibbank_04072016.pdf