Strong Hryvnia and Effective Dollar Exchange
US dollars and Ukrainian hryvnias (Photo:NBU)
The difference between the official rate and the black market rate for hryvnia-dollar exchanges is already below 5% – This is downright unworkable by the standard of the black and gray markets.
Optimists have taken over the markets again. The weekend passed without bank failures, which, of course, pleased investors. Deutsche Bank has held, which was somewhat in question last Friday. But it has managed to avoid sharing the fate of its Swiss comrades, at least for now, although there have been many similarities in the two banks’ life paths in recent years. Moreover, the ECB said that it does not see any significant outflows of deposits from the banking system, so for now, you do not need to worry. As a result, stocks were in demand, and on Friday morning the S&P 500 index opened at around 4050 points, which is almost 100 points higher than a week ago. So far, American markets are not afraid of either Chinese alarmism or news articles about former President Donald Trump, whose legal problems seem to finally be bearing fruit.
Against this background, even the price of oil has risen, approaching again the mark of $80 per barrel of Brent. The Euro also continues to strengthen.
The dollar/euro exchange rate has already approached the point of $1.09 per euro, leaving behind the memories of parity which at one time so alarmed the Ukrainian information space. Markets are actively betting that the rate hike cycle in the US is close to completion, while in the EU the most interesting happenings are yet to come. But even here, in the European financial sector, the long arms of American regulators are reaching out. It seems that the chickens have come home to roost for those at the head office of Raiffeisen Bank. The head of their Supervisory Board came out, apparently realizing that he would no longer be invited to go fishing in the Barents Sea, and, while at the same time accusing the whole world of moralizing, nevertheless announced the bank’s plans to leave the Russian market. How and when is yet to be determined, but the process has begun.
In the Ukrainian Eurobond market, the mood is clearly divided between the corporate and sovereign sectors. There is peace and quiet in the public debt market. Investors read the memorandum with the IMF, and heard from the Ministry of Finance that negotiations on restructuring will begin in early 2024. There is nothing new in this, just investors receiving confirmation of the correctness of their assessment of the situation as “completely incomprehensible,” because it is not clear how much of the debt will be written off. Thus, Ukrainian sovereign bonds are being traded in the region of 20% of face value, mortgaging debt relief of 50% or even more. At least, it is obvious that the IMF, which wants everyone to share the pain and responsibility, will push us toward such a write-off. True, while investors can reassure themselves that even though Ukraine's debt is growing, it nevertheless looks much more sane, even against the background of the war, than the debt levels both in a number of countries in Southern Europe and in countries from emerging markets that have recently come under IMF trusteeship. At the end of 2023, the expected debt-to-GDP ratio will be 93%. Moreover, most of the new debt will not heavily burden the Ukrainian budget with payments.
Buyers are dominating the Ukrainian corporate segment, where prices have risen significantly against the background of good results from the corporations themselves, which, for the most part, are going through the war normally, and investors no longer expect further tricks with partial debt cancellation. Moreover, Ukrainian corporations from time to time hold tenders to buy back their debt. This week, DTEK spent $80 million to buy back its debt at a price below 50% of the face value (41% to be exact), taking advantage of the moment to reduce the debt burden. And the main question for most Ukrainian corporate borrowers now is not whether they have money or even the desire to pay (somehow it happened that those who remained on the foreign market are among those who still pays their debts - a very non-standard desire for Ukrainian business practice, by the way), but of taking the opportunity to make a payment. Namely, they are looking for the opportunity to find money abroad, because the NBU does not encourage such operations.
The hryvnia also continues to strengthen, with the difference between the official rate and the black market rate already below 5%. This is downright unworkable [3] by the standard of the black and gray market. It was as if the losers and hooligans suddenly started getting A's in math and turning into nerds. The exchange rate on the cash market by the end of the week was steady at around 37.8-37.9 hryvnias per dollar. Now everyone is nodding in the direction of farmers with their traditional seasonal tradition of getting checkered bags with dollars from the bins for sowing. It seems that the farmers believe in the bright future of grain agreements and decided that it was time to sow. That cannot but please even the National Bank, which has recently, in principle, been more than optimistic. It even, for example, does not even rule out an earlier rate cut against the backdrop of more restrained inflation. This is even in spite of the rally in the price of garlic, scaring people who believe in vampires and now feel insecure.
P. S. Life is not about finding yourself. Life is about creating yourself.
Lolly Daskal
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