Ukrainian Capital Markets Weekly

Transcription

1 USD mn Economics Interest Rates Strategy FX Apr, 7 Ukrainian Capital Markets Weekly This week in focus: Currency market: Figure. UAH exchange rate (UAH per $) NBU FX auctions/interventions, USD mn NBU rate (RHS) Interbank rate (RHS), - - -, 7-Jan 7-Feb 7-Mar 7-Apr, Reuters Figure. EUR/USD spot (mid),9,,7, 7, 7,,, 7-Jan 7-Feb 7-Mar 7-Apr Elevated inflation print likely to prevent NBU from aggressive cut March inflation readings show CPI acceleration to.% y/y (.% m/m), up from.% y/y in February. We downgrade our CPI EoY forecast to.% y/y and expect at most bp rate cut from the NBU on the next MPC meeting on April, as upside risks for price stability re-appeared. Please see page for more details. NBU Governor resigns USD/UAH increased to 7. as of Friday the 7 th. Week-on-week the local currency depreciated by.% against the USD. Average daily USD sale volumes on the market landed at USD 9.mn, USD 9.mn lower than in the previous week. The NBU held no interventions on the FX market for the third week in a row. The NBU purchased a total of USD.bn in March to replenish its FX reserves, which, however, shrunk to USD.bn as of April, due to repayments and servicing of public and publicly guaranteed debt amounting USD.mn. The NBU Governor Valeria Gontareva made an official announcement on resignation. In line with the Ukrainian legislation, Mrs Gontareva will keep on fulfilling her duties until the Parliament accepts her resignation. Following the recent decision of the IMF Executive Board, Ukraine allocated USD bn tranche, which, in turn, unlocked the disbursement of the second tranche of macro-financial assistance from the EU amounting EUR mn, that pushed NBU`s FX reserves to USD.7bn, as of April, the highest level since mid-. According to the official IMF's memo, Ukraine is expected to fulfill the following main points in order to continue further cooperation: - Parliamentary approval of pension system reform by the end of April 7 and effective from the beginning of. Labor force will be provided with a wider range of retirement ages to choose from, in order to encourage late retirement; - Parliamentary approval of establishing a new civil service responsible for investigation of financial offences by the end of April 7; - Parliamentary approval of farm-land market by the end of May 7 and effective from the beginning of. Farm-land sale moratorium will expire by the end of 7, allowing state-owned and private farm-land sale; - Granting NABU additional powers and resources by the end of May 7; - Parliamentary adoption of legislation to establish an anticorruption court by the mid-june 7, which is to be provided with a budgetary autonomy and independent judges selection process in order to start its operations by the end-march ; - Revision of household s utility subsidies (HUS) with its further monetization by the end of July 7. As a result, HUS outlays are to be limited to UAH 7bn in 7; - Parliamentary adoption of amendments to privatization law with creating a larger pipeline of SOEs for privatization by the end of August 7; - Cutting the number of public sector employees by at least % by the end of 7, with further % cut by the end of 9. The number of reviews under the EFF program was decreased from to, leaving the total amount of disbursement unchanged at the level of SDR.bn (ca. USD.79bn). According to the new schedule, Ukraine is eligible to receive three more tranches amounting USD.bn by the end of 7. However, we expect allocation of only two tranches (USD.bn) as the best case scenario. Disbursement of the third EUR mn tranche of the macro-financial assistance from the EU depends on the adoption of the law on electricity market, which is set to create commercial and technical conditions for the integration of Ukrainian and European energy markets, according to the First Secretary of the EU Delegation to Ukraine Jose Manuel Hernandez. In the mid-term, markets should expect mild fluctuations of USD/UAH in the.-7. band. Over the month forecast horizon the local currency is likely to keep gradually weakening, with the year-end projection resting at EUR/USD rate landed at. as of Friday the 7 th, slightly lower than the last weeks closing level of.9, as the USD advanced against its major peers.

2 UAH bn Money market: Figure. Banking liquidity (UAH bn) vs. KIEIBOR rates Outstanding NBU CD Correspondent accounts KIEIBOR ON (RHS) KIEIBOR M (RHS) 9 7 -Dec -Jan -Feb -Mar -Apr, NBU, UkrSibbank, MinFin % 9% % 7% % % % % % % VAT reimbursement spurs liquidity Aggregate banking liquidity amounted to UAH.bn as of Friday the 7 th, up by UAH.9bn week-on-week, as UAH 9.9bn of VAT reimbursement took place, which is.% more comparing to the March. Money market rates remained flat: cost of ON funds is around /%, indicative week is /% while indicative M is./.%, according to our data. MinFin s April th OVDP auction yielded UAH.mn. y and y bonds were sold at the cut-off rate of.9% and.% respectively, with the cut-off rates remaining constant for y bonds, and down by bp y bonds since previous placement of analogous bonds took place on March. m bonds met no demand. Figure. OVDP auction results, th of April 7 CCY Maturity Cut-off Max bid Min bid Number Bids Placement WA rate Bid size rate rate rate of bids accepted size UAH y.9%.9%.9%.9% 7.mn 9.mn UAH y.%.%.%.%.mn.mn Global markets: Figure. Ukraine s sovereign Eurobond yields, bid/ask mids (%) 9, 9,,, 7, 7,, 7-Jan 7-Feb 7-Mar 7-Apr Figure. Major stock indices (Jan-7=) S&P Stoxx % % % % % Ukraine-9 Ukraine- Ukraine-7 -% Jan-7 Feb-7 Mar-7 Apr-7 Figure 7. Commodity prices (Jan-7=) Corn Wheat WTI oil Steel HR coil Iron ore % % % % -% -% Shanghai Composite FTSE -% Jan-7 Feb-7 Mar-7 Apr-7 Cautious mood prevailing Sluggish start of the week was the result of cautious sentiments prevailing among the investors in face of the market-moving weekend. Safe-haven assets and oil soared after the US military strike in Syria. Bond benchmarks gained slightly, with y US Treasuries yields landing at.%, bp lower week-on-week, while German y bunds yields experienced a drop of bp, closing at.%. Japanese y bonds finished the week at.%. US stocks indexes decreased marginally, with S&P and Nasdaq Composite lost.% and.% respectively week-on-week. Trading volumes were subdued at the start of the week, as the main market-moving news were anticipated on Friday. US payroll data missed expectations, posting only 9 new jobs created in March, well below analysts consensus forecasts of jobs. Despite disappointing figures, the weakest since May, unemployment rate decreased to.% -- the lowest since May 7, whereas the wages advanced.7% y/y. The unusual warm weather, last month payroll driver, returned to average conditions, downsizing the enthusiasm in construction sector. Labor-force participation rate remained flat m/m at the level of.%. Geopolitical concerns emerged after the US carried out a military strike against a Syrian airbase, just in front of the meeting between the US President Trump and Chinese President Xi Jinping, where some key issues like bilateral trade and North Korea s nuclear program were in the agenda. The Fed published its March FOMC meeting s minutes, unveiling intentions to start reducing its USD.tn balance sheet by the end of 7. The pan-european stock benchmark Stoxx remained level week-on-week. Muted trading volumes kept on for the second consecutive week. ECB s March meeting minutes reflected widely anticipated resistance to policy shifting among the Council members. Despite the pick-up in the harmonized index of consumer prices, the economic momentum still lacks enough power to reduce current stimulus measures. Japanese gauge Nikkei dropped.% week-on-week. Despite last-week s weal consumption data on February, consumer confidence advanced in March, rising to.9 (. in February) which was the highest reading since September. China s FX reserves increased in March by USD.9bn. PBOC disclosed reserves growth for second month in a row, exceeding a psychologically important USD tn threshold. Positive trend heralds successful government s policy on capital flows curb. As we expected, Fitch Ratings and S&P downgraded South Africa s sovereign credit rating to junk, reflecting the impact of political turbulence after the resignation of the finance minister Pravin Gordhan. Crude oil surged reflecting the concerns of US military strike, as WTI m futures gained.% and closed at USD. per barrel, while Brent m futures advanced by.%, landing at USD. per barrel.

3 Figure. Inflation rates in -7 7% % % % % % % % Source: Ukrstat, Ukrsibbank This week in focus: Figure 9. Price changes in selected categories, March 7, % m/m Source: Ukrstat Figure. CPI basket Source: Ukrstat CPI m/m (RHS) PPI y/y -% Jan- Jul- Jan- Jul- Jan-7 Food and beverages Alcohol and tobacco Clothes and footwear Utility services Healthcare Transportation Household goods Food and beverages Alcohol and tobacco Healthcare Household goods % 7% % 7% % % CPI y/y CCPI y/y % % % % % % % % % % % % % % % -% Transportation Utility services Clothes and footwear Other % Elevated inflation print likely to prevent NBU from aggressive cut March inflation readings show CPI acceleration to.% y/y, up from.% y/y in February. On month-on-month basis CPI increased by.%. Food products prices accelerated 7.% y/y and.% m/m (versus.% y/y and.% m/m in February) that played a substantial role in the overall price trend, due to the significance of this category in the consumption basket. The second price driver was the low comparison base effect that kept on pushing the prices upwards. Prices on meat, which are poised to have the biggest weight in the food category climbed by.% y/y, following the seasonal stocks reduction and rise in the production costs. Prices on eggs reversed last few months trend and increased by.9% y/y, while butter added 9.% y/y. Administered prices and tariffs surged, primarily due to the second biggest part of the consumption basket transportation expenses. Transportation tariffs increased by.% y/y and.% m/m, which in turn was driven by two main factors: raise in rail transportation tariffs, as a result of tickets prices surge in February and % wages increase for UZ employees in March, and ongoing trend of fuel prices that advanced by.% y/y. The fuel prices reflected the -month lag effect of the global oil prices in February that were still experiencing momentum after the OPEC s decision to curb supply. Utility prices printed 9.% y/y growth, as anticipated electricity prices hike added.7% y/y and.% m/m. Prices on heating and hot water spurred.9% y/y, while prices of water supply increased by.% y/y. While the electricity price hike in March poised to be the last one in 7, uncertainty over the coal supplies may trigger further unscheduled hikes, while vague implications of the resolution on the customer charge for gas, implemented by the NCER (National Commission on Energy), was resisted by the President Poroshenko. Prices on clothes and footwear rose by.% y/y and.% m/m (versus +.7% y/y and -.% m/m in February), reflecting the seasonal spike in demand for this category of goods. Core inflation slowed down to.% y/y and.7% m/m, signaling that fundamental factors played a sizable role in the normalization of CPI growth. PPI posted.% y/y, down from.9% y/y in the previous month, mostly due to higher tariffs for electricity and gas supply (+.% y/y) and rallying prices on raw materials on global markets. Higher upside risks to price stability are stemming from the twofold raise in minimum wage and looming uncertainty over utility prices. Rising purchasing power of households and labor costs surge for enterprises have already found their reflection in prices growth, whereas the resolution on the customer charge for gas may pave the way for further utilities prices spike. Following CPI acceleration in March, we would like to adjust our year-end inflation forecast from 9.% y/y to.% y/y. We expect CPI to remain in the double-digit area till the very end of Q7. Given the allocation of tranches from the IMF and the EU Commission, totaling USD.bn, the opportunity to continue policy easing is likely to re-appear on the NBU s agenda. However, robust CPI growing pace, as a result of rising consumption power coupled with administered prices surge, is likely to slow down the pace of monetary easing measures in order to reach announced year-end inflation target and avoid sharp devaluation of the UAH. We expect NBU s MPC to leave the key rate unchanged on its next meeting, which is scheduled for April. Marginal cut is still possible, although, given the circumstances, the cut is likely to be bp at most.

4 Banking liquidity vs. money market rates, % Outstanding NBU CD KIEIBOR ON (RHS) Correspondent accounts KIEIBOR M (RHS) % 9 % 7 % % % Apr- Oct- Apr- Oct- Apr-7 Money market Monthly change in local currency loans and deposits, UAHbn Total UAH-deposits Total UAH-loans Feb- Jun- Oct- Feb- Jun- Oct- Feb-7 UAH exchange rate, UAH/$ Interbank rate, NBU, UkrSibbank estimates Source: the NBU Currency market Net retail FX interventions of the NBU in -, USDmn NBU weighted average rate Net FX intervention of NBU Weighted average USD/UAH rate 7 7 Apr- Jun- Aug- Oct- Dec- Feb-7 Apr-7 - Apr- Aug- Dec- Apr- Aug- Dec- Apr-7 Major BoP accounts, USDbn Current account balance ($ bn) Finance account balance ($ bn) Balance of payments ($ bn) - - Jan- May- Sep- Jan- May- Sep- Jan-7 Balance of payments BoP vs change in foreign reserves, USDbn Balance of payments ($ bn) Change in FX reserves, m/m ($ bn) Jan- May- Sep- Jan- May- Sep- Jan-7 Exports components dynamic, USDbn Imports components dynamic, USDbn Agricultural products Machinery and equipment Ferrous and non-ferrous metals Other exports Machinery and equipment Chemicals Mineral products Other imports Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-7 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan-7

5 Budget performance, UAHbn Budget performance Monthly change in budget revenues and expenditures, UAHbn Jan-Feb Jan-Feb 7 Budget revenues 7,9, VAT proceeds,, Corporate income tax,, Budget expenditures 7,9, Deficit / Surplus -,,7 UAH- denominated debts repayments schedule, UAHbn VAT servicing and redemption OVDP redemption Total government debt, % GDP USD linked servicing and redemption OVDP servicing Jan-7 May-7 Sep-7 Jan- May- Sovereign debt Revenues Expenditures 9 7 Feb- Jun- Oct- Feb- Jun- Oct- Feb-7, State Treasury FX-denominated external debts repayments schedule, USDbn Eurobonds coupon Eurobonds principal USAID coupon USAID principal IMF Quasi-sovereign bonds , UkrSibbank estimates, IMF, UkrSibbank estimates Local borrowings, UAHbn equivalent Domestic, direct External, direct 9% Domestic, guaranteed External, guaranteed % 7% % % % % % % % Dec- Dec- Dec- Dec- Dec- Dec- Dec- Source: MinFin OVDP OVDP-ind USD OVDP EUR OVDP Jan- Mar- May- Jul- Sep- Nov- Jan-7 Mar-7 Outstanding OVDP owners structure, UAHbn NBU Banks Other Non-residents 7 Apr- Oct- Apr- Oct- Apr- Oct- Apr-7 Outstanding OVDP changes in holding since start, UAHbn NBU Banks Other residents Non-residents Apr- Oct- Apr- Oct- Apr- Oct- Apr-7

6 Mid Yield to Maturity, % Eurobond market Ukraine s sovereign Eurobond yields, % Ukraine s sovereign Eurobond yield curve Ukraine-9 Ukraine- Ukraine Apr- Jun- Aug- Oct- Dec- Feb-7 Apr Week ago Month ago 9, 9,,9,7,,, 7,9 7,7 7 9 Years to Maturity Commodity markets Fertilizers (Black Sea), USD per ton Steel CIS export HR coil, USD per ton Ammonia Urea Apr- Oct- Apr- Oct- Apr-7 WTI oil (nearest active future at NYMEX), USD per barrel Apr- Aug- Dec- Apr- Aug- Dec- Apr-7 Corn and wheat (nearest active future at CBT), USD per bushel 7 7 Corn Wheat 7 Apr- Oct- Apr- Oct- Apr-7 Apr- Oct- Apr- Oct- Apr-7

7 GDP growth Fixed capital investments Industrial production Retail trade Construction works Agricultural output Inflation rate Jobless rate Balance of payments NBU reserves Monetary / FX statistics Balance of Treasury account Key Macroeconomic Indicators Ratings (M/S&P/F) Caa/B-/B- 9 7F F Real sector Real GDP (%YoY) Industrial production (%YoY) Retail sales (%YoY) Unemployment rate end of year (ILO, working age) Nominal GDP (UAHbn) Nominal GDP ($bn) Prices CPI (average %YoY) CPI (end of year %YoY) Real average wage growth (%YoY) Fiscal balance (% of GDP) State budget deficit (without Naftogaz) Total public debt External balance Exports of goods ($bn) Imports of goods ($bn) Current account balance ($bn) Current account balance (% of GDP) Net FDI ($bn) Foreign exchange reserves (end of year) Imports coverage (months of imports of goods) Interest and exchange rates NBU discount rate (% end of year) * 9.* Exchange rate (UAH/USD) end of year *.* Exchange rate (UAH/EUR) end of year *.* Source: UkrStat, NBU, MinFin, UkrSibbank * Broad estimate Economic calendar 7 Source: UkrStat NBU State Treasury Date of release (actual / indicative) act act act act act act act act ind ind ind act April April April 7 April April April April April May May May May May May 9 May May May May 7

8 Contacts Dmytro Tsapenko Head of ALMT&Capital Markets (+) 7 Serhiy Yahnych Head of Investment Business (+) 7 serhii.yahnych@ukrsibbank.com Oleksandr Duda Head of FX Sales (+) 7 oleksandr.duda@ukrsibbank.com This document has been prepared by the strategy team of PUBLIC JOINT STOCK COMPANY UKRSIBBANK that is the part of BNP Paribas Group (hereafter JSC UkrSibbank ) in strict compliance with related Ukrainian legislation). The report does not purport to be an exhaustive analysis, and may be subject to conflicts of interest resulting from their interaction with sales and trading which could affect the objectivity of this report. This document is a marketing communication and is not considered to be an independent investment research. The document have not been prepared in accordance with legal requirements designed to provide the independence of investment research, and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information and opinions contained in this report have been obtained from, or are based on, public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate, complete or up to date and it should not be relied upon as such. The following points of attention should be taken into consideration: - JSC UkrSibbank may have a financial interest in any issuer or person mentioned in this report, including a long or short position in their securities and/or options, futures or other derivative instruments based thereon, or vice versa. - JSC UkrSibbank, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any person mentioned in this report. - JSC UkrSibbank may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last months for any person referred to in this report. - JSC UkrSibbank may be a party to an agreement with any person related to the production of this report. - JSC UkrSibbank may, to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis on which it was based, before its publication. - JSC UkrSibbank may receive or intend to seek compensation for investment banking services in the next three months from or in relation to any person mentioned in this report. - Any person mentioned in this report may have been provided with sections of this report prior to its publication in order to verify its factual accuracy. This report does not constitute an offer or solicitation to buy or sell any securities or other investment. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient, are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permitted by law, neither JSC UkrSibbank, nor any other BNP Paribas group company, accepts any liability whatsoever (including in negligence) for any direct or consequential loss arising from any use of or reliance on material contained in this report. All estimates and opinions included in this report are made as of the date of this report. Unless otherwise indicated in this report there is no intention to update this report. JSC UkrSibbank and its affiliates (collectively JSC UkrSibbank ) may make a market in, or may, as principal or agent, buy or sell securities of any issuer or person mentioned in this report or derivatives thereon. Prices, yields and other similar information included in this report are included for information purposes. Numerous factors will affect market pricing and there is no certainty that transactions could be executed at these prices. Potential counterparties/distributors should review independently and/or obtain independent professional advice and draw their own conclusions regarding the suitability/appropriateness of any transaction including the economic benefit and risks and the legal, regulatory, credit, tax and accounting aspects in relation to their particular circumstances. Analytical materials featured above are a marketing communication not intended for public use. JSC UkrSibbank is the sole owner of the contents of this document (as well as the graphics, the layout, and the text) which is protected by (Ukrainian and international) copyright laws. No materials featured herein can be reproduced or used in any format, in whole or in part, without the prior written consent of JSC UkrSibbank. By accepting this communication, a recipient hereof agrees with abovementioned limitations.