Sep 6, 2016

This week in focus: Financial inflows are vital for UAH stability as current account deteriorates 

The BoP demonstrated a USD 110mn surplus in July 2016. The positive figure is attributable to the financial account, which posted a USD 447mn surplus, whereas the current account showed a deficit of USD 327mn.
We expect the current trend to persist till the end of 2016, with the financial account being supported by an inflow of international funds. 
We are keeping our year-end GDP growth estimate at 1.2%, while the year-end USD/UAH rate is maintained at 27.0.

Currency market: USD/UAH jumps to 26.75, likely to roll back in the near future 

USD/UAH closed at 26.75 on September 5 in a dramatic leap from the previous Mondays level of 25.54.
In an attempt to contain the local currencys volatile weakening the NBU intervened into the market 3 times with the total amount of USD 110mn.
We would like to argue that the recent weakening of UAH was caused by speculations and the local FX markets propensity for panic, as the fundamentals remain solid, for now. 
Going forward, markets should expect wide fluctuations of USD/UAH in the 25.5-27.5 band, which is an upward adjustment of our previous projections. The year-end USD/UAH rate forecast is kept at 27.0.
EUR/USD stayed level after miniscule fluctuations, closing 1.1192 as of Friday the 2nd of September. Dollars weakening on the weaker-than-expected economic data didnt have much of an effect.

Money market: Liquidity likely to start stabilize in September

Aggregate banking liquidity somewhat recovered, landing at UAH 81.5bn on September 2.
Going forward, liquidity is unlikely to increase without MinFin ramping up its expenditures, since the NBU might continue absorbing liquidity through its FX sales as it will probably attempt to mitigate the USD/UAH rate volatility.
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: Negligible demand

On the last OVDP auction only 5y bonds received demand from investors, as zero-coupon bonds were shunned. The cut off rate decreased by 10b.p, comparing to the previous analogous placement. 
Most likely the upcoming auctions will not yield much proceeds as demand remains subdued due to low levels of liquidity.

Global markets: US payroll data shakes the markets after an unremarkable week

The anticipated US payroll report that came out on Friday failed to deliver a meaningful message regarding future policy moves by FED. Global stocks and the USD edged up, whereas bonds sank.
Yields on key safe haven assets increased, while S&P 500 was little changed, advancing by 0.5% since last week. The US benchmark hasnt been able to move by more than 1% in any direction since mid-July.
The Stoxx 600 gauge gained 2.3% throughout the week, with most of the move happening on Friday, bolstered by weaker-than-expected US jobs data.
MSCI Emerging markets index swung between gains in losses closing just 0.1% higher than the previous Friday, while Chinese PMI indicators readings encouraged the markets. 
Crude oil posted a week of losses, although the commodity powered forward on Friday as Russia announced that it will seek ways to implement an output freeze with other oil producers. Brent closed at USD 46.83 per barrel, while WTI closed at USD 44.44 per barrel.

For more information: UkrSibbank_06092016.pdf