Focus Markets Research team

Ukraine Money & bond markets, Alexander Valchyshen

FX market, macroeconomics Taras Kotovych
Artem Gladchenko

Daily Insight
Hryvnia down
Key messages of the today's comments WEDNESDAY, 11 OCTOBER 2017

Ukraine's hryvnia exchange rate per US dollar

Domestic liquidity 2 (three months through 10 October 2017)

Liquidity up .................................................................................. 2 27.00

26.80
Liquidity recovered from the year’s low to UAH74.95bn, up UAH2.06bn, 26.60
or 2.8%. 2 26.40
26.20
26.00
Foreign exchange markets 3 25.80
25.60
Hryvnia down ............................................................................... 3 25.40
25.20
The hryvnia depreciated further, following a previous 0.7% increase, as 25.00
10-Jul 9-Aug 8-Sep 8-Oct
it fell 0.1% to 26.5862 USD/UAH, most likely as a correction after
Source: Bloomberg.
appreciating significantly. There were no fundamental factors that
weighed on the hryvnia. While the USD depreciated on global markets,
the hryvnia was sold for 26.67 USD/UAH versus 26.89 to buy in the Selected indicators of the financial markets
(three months through 10 October 2017)
Ukrainian cash market. Its CPI-based real trade-weighted
Last Daily YTD
index fell 0.77% to 105.51; in year-on-year terms, it is up 3.86% from chg (%) chg (%)
101.59 last year. 3
DOMESTIC LIQUIDITY
NBU key policy rate (%) 12.50 +0bp -150bp
Appendix #1: Domestic liquidity 4 Overnight rate (interbank) 11.50 -40bp +90bp
Banks reserves (UAHm) 39,943 -5.88 -19.68
Deposit certificates* (UAHm) 35,009 +14.95 -43.75

FOREIGN EXCHANGE MARKET

UAH per US dollar 26.5700 +0.32 -1.96
Total trade volume (US$m) 182.64 +14.79 +7.68
UAH index CPI-based 105.505 -0.77 -2.31
UAH index PPI-based 162.609 -0.77 -3.42

UKRAINE SOVEREIGN EUROBOND MARKET

CDS 5yr 450bp +0bp -203bp

GLOBAL FINANCIAL MARKET INDICATORS

S&P 500 2,550.64 +0.23 +13.93
MSCI EM 1,112.53 +1.10 +29.02
US dollar index (DXY) 93.290 -0.41 -8.73
EUR / USD 1.1808 +0.58 +12.28
Crude oil WTI (US$/bbl) 50.92 +2.70 -5.21
Crude oil BRENT (US$/bbl) 56.61 +1.47 -0.37
CRB, commodities index 183.20 +1.24 -4.84
Gold (US$/ounce) 1,288.03 +0.32 +11.78

Notes: * NBU's short-term bonds.

Source: Bloomberg, ICU.

READ FIRST THE DISCLOSURES SECTION (ON LAST PAGE) FOR IMPORTANT READ FIRST THE DISCLOSURES SECTION FOR I
DISCLOSURES AND ANALYST CERTIFICATION AND ANALYST CERTIFICATION
11 October 2017 Daily Insight Hryvnia down

Domestic liquidity
Interest rates in the banks' reserves market
Liquidity up (three months through 10 October 2017)

Liquidity recovered from the year’s low to UAH74.95bn, up UAH2.06bn, or NBU's O/N depo rate NBU's O/N lending
NBU's policy rate Overnight rate
2.8%. (%)
15.0
The State Treasury's operations amounted to UAH1.7bn while cash had an
inverse impact on liquidity.. Thus, the overall positive impact from
autonomous factors amounted to almost UAH1.4bn. Banks’ correspondent 12.50
11.50
accounts with the NBU decreased by almost UAH2.5bn, while total CDs
outstanding increased by UAH4.55bn, the main part of which were overnight 10.0
Jul-17 Aug-17 Sep-17 Oct-17
CDs.
Source: Bloomberg, ICU.
ICU view: The positive effect from the State Treasury was the main
factor in increasing liquidity. In addition, the NBU through other Key indicators (as of 10 October 2017)
monetary operations increased the amount of reserve funds by Last Daily Weekly Monthly YTD
UAH0.36bn. chg (%) chg (%) chg (%) chg (%)

BANKS’ RESERVES MARKET (%)

Taras Kotovych, Kyiv, (044) 377-7040 ext.724 1
NBU rate 12.50 +0bp +0bp +0bp -150bp
Artem Gladchenko, Kyiv, (044) 377-7040 ext.737
ON rate 11.50 -40bp +30bp -40bp +90bp
ON $ swap 11.93 -13bp +17bp -17bp +46bp
DOMESTIC LIQUIDITY (UAH MILLION)
2
Reserves 39,943 -5.88 -5.28 -14.18 -19.68
3
DepCerts 35,009 +14.95 -3.01 +6.61 -43.75
Total 74,952 +2.83 -4.23 -5.58 -33.06
BREAKDOWN OF GOVT BOND HOLDERS (UAH MILLION)
NBU 360,573 +0.00 -0.46 -0.80 +1.24
Banks 308,444 -0.21 -0.17 +0.73 +78.98
Residents 23,432 -0.10 +0.63 +0.47 +49.46
4
Non-res 2,799 -0.01 +0.01 +61.48 -55.93
Total 695,249 -0.10 -0.29 +0.07 +26.29
IMPLIED YIELDS OF THE UAH NDF MARKET (%)
1 month 12.11 -28bp +100bp -7bp -10ppt
3 months 12.21 -10bp +29bp +17bp -986bp
6 months 12.16 -11bp -360bp +1bp -589bp
1 year 11.60 -3bp +9bp -10bp -439bp
UKRAINE SOVEREIGN EUROBOND MARKET
CDS 5yr 450 +0bp -17bp +5bp -203bp

Notes: [1] NBU’s key policy rate; [2] stock of banks’

reserves held at NBU; [3] stock of NBU’s short-term bonds;
[4] non-residents.
Source: Bloomberg, ICU.

2
11 October 2017 Daily Insight Hryvnia down

Foreign exchange markets Key indicators (as of 10 October 2017)

Last Daily Weekly Monthly YTD

chg (%) chg (%) chg (%) chg (%)

Hryvnia down EXCHANGE RATES (PER US DOLLAR, EXCEPT EURO, POUND)

UAH 26.5700 +0.32 -0.56 +1.94 -1.96
The hryvnia depreciated further, following a previous 0.7% increase, as it fell 1
USD 93.290 -0.41 -0.30 +2.12 -8.73
0.1% to 26.5862 USD/UAH, most likely as a correction after appreciating RESEARCH INSIGHT
EUR 1.1808 +0.58 +0.54 -1.89 +12.28
significantly. There were no fundamental factors that weighed on the hryvnia. JPY 112.4500 -0.20 -0.35 +4.27 -3.86
While the USD depreciated on global markets, the hryvnia was sold for GBP
2
1.3203 +0.46 -0.26 +0.02 +6.99
26.67 USD/UAH versus 26.89 to buy in the Ukrainian cash market. Its CPI- CNY 6.5743 -0.77 -1.18 +1.23 -5.34
based real trade-weighted index fell 0.77% to 105.51; in year-on-year terms, RUB 57.9751 -0.54 +0.06 +1.06 -5.79

it is up 3.86% from 101.59 last year. Notes: [1] DXY, US dollar index; [2] British pound.
Source: Bloomberg, ICU.
Geopolitical tension had a negative impact on the US dollar. Information
about the possible launch of an intercontinental missile by North Korea
Ukraine hryvnia UAH exchange rate
forced investors to look at safe haven assets. The expectation of the key per US dollar at the interbank market
policy rate hike at the end of the year temporarily lost its effect, thus the DXY (three months through 10 October 2017)
index traded at 93.137 - 93.738, closing down 0.4% to 93.29. Market rate NBU's bid NBU's offer
27.0 26.7710
The euro appreciated against the US dollar due to strong German statistics
and comments of ECB officials. Industrial production in Germany rose at the 26.5

greatest pace in six years in August. An ECB executive board member noted
26.0
that the bank needs to taper its asset purchasing to stop the program in
2018. Thus, the EUR/USD pair traded within 1.1739 - 1.1825 EUR/USD, 25.5

having appreciated 0.6% to 1.1808 EUR/USD. The Chinese yuan increased 25.4545
25.0
against the US dollar on Tuesday, as the PBOC chief said that the bank must 10-Jul 9-Aug 8-Sep 8-Oct

accelerate the process of transferring to market exchange rate versus state Notes: the chart provides labels for the average exchange
rate at last two NBU auctions (one on buying FX from the
control. The renminbi appreciated 0.8% to 6.5743 USD/CNY. market and one on selling it). Source: NBU, Bloomberg,
ICU.
The Russian ruble appreciated on Tuesday on the back of strong oil prices Ukraine hryvnia UAH exchange rate
per US dollar at the cash market
which increased as Saudi Arabia announced that it would reduce its oil (three months through 10 October 2017)
export volume in November. The simultaneous depreciation of the US dollar
Bid Ask
also supported the ruble which, during the day, traded at 57.8111- 27.5
58.4085 USD/RUB, having appreciated 0.55% to 57.9751.
27.0
26.89
Alexander Valchyshen, Kyiv, (044) 377-7040 ext.721 26.67
26.5
Artem Gladchenko, Kyiv, (044) 377-7040 ext.737
26.0

25.5

25.0
10-Jul 9-Aug 8-Sep 8-Oct
Source: NBU.

UAH exchange rate misalignment1 from

fundamental level2 (%)
(three months through 10 October 2017)

CPI-based real 5yr PPI-based real 5yr

40.0
35.0
30.0 +28.9
25.0
20.0
15.0
10.0 +9.4
5.0
Readers may follow the ICU trade-weighted indices of the local-currency, 10-Jul 9-Aug 8-Sep 8-Oct
the hryvnia (UAH), on the ICU website. Notes: [1] "+" overvalued, "-" undervalued; [2] based on
the UAH’s CPI- and PPI-based real TWIs. Source: ICU. 3
11 October 2017 Daily Insight Hryvnia down

Appendix #1: Domestic liquidity

Chart 1. Banks reserves usages over last reporting date (UAHm)
43,000 +300 -4,554
42,436
42,500
42,000
41,500
41,000
40,500 +1,698 -46 39,943
40,000
39,500
39,000 +364 -256
38,500 +1,461
38,000
Banks O/N loans O/N Tenders of Tenders of Other Change in Operations by Other Banks
reserves (as certificates of liquidity certificates of monetary cash Treasury, operations*** reserves (as
of opening 9- deposit support deposit operations* DIF** of closing 9-
Oct-17) Oct-17)

Chart 2. Banks reserves usages over last 90-day period (UAHm)

70,000 +3,031 -26,831
+25,251 -122
65,000

60,000

55,000

50,000

45,000 42,960 +300 -3,250

-1,324
-72 39,943
40,000

35,000
Banks O/N loans O/N Tenders of Tenders of Other Change in Operations by Other Banks
reserves (as certificates of liquidity certificates of monetary cash Treasury, operations*** reserves (as
of opening deposit support deposit operations* DIF** of closing 9-
10-Jul-17) Oct-17)
Notes: [1] data from the NBU's daily reporting https://bank.gov.ua/control/uk/publish/article?art_id=38643651&cat_id=40807142 ;
* operations repo, purchase and sale of government bonds, FX market interventions, stabilisation loans, FX swap agreements; ** DIF – deposit insurance fund;
*** interest payments on NBU's loans and on NBU's certificates of deposit, other operations. Source: NBU, ICU.

Chart 3. Stocks of NBU's monetary instruments and net position by banks versus NBU (UAHbn)
80.0 O/N loans

60.0
Tender loans
40.0
Other loans (dues by
20.0 solvent banks)
0.0 Other loans (dues by
insolvent banks)
-20.0
O/N certificates of deposit
-40.0
Tender certificates of
-60.0 deposit

-80.0 Net position by banks vs.

10-Jul-17 24-Jul-17 7-Aug-17 21-Aug-17 4-Sep-17 18-Sep-17 2-Oct-17 NBU
Source: NBU, ICU.

4
11 October 2017 Daily Insight Hryvnia down

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Domestic liquidity 2
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not defined.
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not defined.

Foreign exchange markets 3

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not defined.
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not defined.

Appendix #1: Domestic liquidity 4

5
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RESEARCH

Alexander Valchyshen Alexander Martynenko

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