Government Bonds Auctions and Global Market Dynamics: January Market Overview
?? Government Bonds Auctions: During the month, the Ministry of Finance of Ukraine managed to replenish the budget by UAH 33 billion, including ~ UAH 13 billion in hryvnia. The overall refinancing indicator remained positive: the rollover of foreign currency debt stood at approximately 145%, while hryvnia borrowings exceeded repayments by 5.3 times. At the same time, the maximum yields of government bonds remained stable from 16.80% (-4 bps) to 18.50% (-10 bps) in hryvnias.
?? Consumer Inflation slowed down from 5.1% to 4.7% YoY in January, while compared to the previous month, it decreased to 0.4% (0.7% MoM in December). Core inflation slowed to 4.6% YoY. The decrease in the core indicator continued to be supported by a slowdown in the pace of price increases for a wide range of goods and services. The increase in transportation prices slowed to 1.7% YoY (3.2% YoY in December) amid declining fuel costs (-0.1% YoY). Food inflation also slowed down from 4.0% YoY to 3.7% YoY.
?? Foreign Exchange Market: In the interbank foreign exchange market, the hryvnia strengthened by 1.2% in January against the backdrop of a narrowing budget deficit and reduced market activity. Client demand volumes fell by 28% MoM, while currency sales decreased by 15% MoM. Therefore, the pressure of net purchases among bank clients decreased by 59% MoM to USD 0.9 billion (-32% YoY), contributing to a reduction in National Bank of Ukraine interventions to USD 2.5 billion (-29% MoM). At the same time, international reserves at the beginning of the year decreased by 5% MoM to USD 38.5 billion (+29% YoY) due to lower volumes of international financial support to USD 0.4 billion.
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?? Global Markets: In the financial market, the US dollar resumed its strengthening amid a rapid decline in market expectations of a Federal Reserve’s rate cut in March. In January, the Fed intensified its rhetoric regarding the need for a moderate start to policy easing, maintaining a forecast of only three rate cuts this year. These signals were reinforced by evidence of the strong positions of the US economy: GDP growth in the fourth quarter of 2023 exceeded forecasts due to the sustained labor market and consumer activity, as well as data indicating a stronger acceleration of inflation.
On the commodity market, the BCOM index rose by 0.3% MoM amid an increase in energy commodities (+1.6% MoM) and a decrease in non-energy commodities (-0.7% MoM).
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