Unexpectedly strong hryvnia and rebounding global markets

Ukraine National Bank lowers key interest rate from 20% to 16%
Ukraine National Bank lowers key interest rate from 20% to 16%

Optimism has finally returned to stock markets

Having received their dose of glucose on Halloween, speculators and investors started buying. As a result, the S&P500 index added almost 200 points during the week and opened Friday morning at 4317 points. As always lately, market dynamics are driven by the prospect of rising or falling interest rates. Now, the market believes that there is nowhere to grow further. Moreover, the head of the Fed supported the mood of the markets. Not to mention that the Fed Funds rate remained unchanged, as expected. Surveys among market participants say that most of them do not expect the Fed to raise the rate and expect that next time, the regulator is going to lower it. Thus, the most aggressive rate hike in a decade is over. And we can exhale.

The good news is that against the background of all this exuberant optimism, oil prices are not growing but decreasing.

As of Friday morning, the cost of a barrel of Brent is about $87 per barrel. The market is relaxing about a potential major war in the Middle East. Israel has so far conducted limited operations, slicing the Gaza Strip in half. But at the same, the Arab countries do not want to get involved in the war, limiting themselves to bellicose rhetoric. Only the Houthis in Yemen, who have nothing to lose and are given some rockets by the Iranians on holidays, have crawled out of their mountain caves and loudly announced that they are going to war with Israel. Their main problem (aside from the fact that Yemen is one of the poorest countries in the world, and they don't really control the state itself) is that they have no border with Israel. So they're trying to shoot missiles across Saudi Arabia, but it's not working out so far.

The Ukrainian segment of foreign debt moved with global markets. As a result, sovereign Eurobonds added 1.5-2.0 points during the week on general optimism, ignoring the articles in TIME. They also ignore the fluctuations in the American Congress, where everyone is confused and quarreling. Even the vote of the lower house for aid to Israel without Ukraine means nothing because the White House and the Upper House support a completely different approach, and Biden even promised to veto aid that exclusively goes to Israel. This uses against the Trumpists their own weapon – blackmail on a subject important to them. Therefore, speculators and investors wisely decided to ignore the noise and just wait for the outcome. Furthermore, the general consensus in the market so far suggests that there will be at least some U.S. aid to Ukraine.

On the domestic bond market, the Ministry of Finance managed to reduce yields on the primary market for the second week in a row amid a shortage of securities on the secondary market. Also impressive is the unexpected performance of the hryvnia, which, despite the managed flexibility and falling reserves, has strengthened, bringing the Ministry of Finance to a heart attack. The black market remains more or less stable, although it also shows signs of strengthening. The strengthening of the hryvnia on the interbank market is managed by the National Bank, which, apparently, is told to do it by its model, which reflects the dynamics of changes in the trade balance. Apparently, there are some positive changes in exports but no fall in imports. The number of cars, including premium vehicles, reached the pre-war level.

What happened to exports, or whether something happened, is still a mystery. A possible positive shift in exports is due to the more active functioning of seaports, which are gradually reaching the level of operations close to the period of the grain deal. We may see the result of the flow against “grey grain,” which has received the full attention of tax officials and the SBU. On the one hand, of course, it is difficult to fight with one-day firms, which you created yourself. On the other hand – if the result is demanded from above, it is also easier to manage the process. It is possible that they decided to tighten the screws, at least temporarily, causing a mathematical growth of legal grain. Moreover, the National Bank threatens to reduce the return period of foreign currency earnings, which is generally unpleasant for everyone.

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