News
BG: Neutral – CPI up 0.3% mom, eases to 3.1% yoy / MinFin sells BGN 65mn of 10?Y paper, vs. planned BGN 60mn, at 5.30% (p2)
HU: Negative – Headline inflation accelerates to 4.3% yoy (p2) LV, LT: Neutral – Fitch revises rating outlook to Stable (p2)
PL: Positive – Oct C/A deficit decreases to EUR 1,622mn (p2)/ Negative – Nov CPI comes in at 4.8% yoy (p3)
RO: Positive – 10M11 C/A deficit shrinks to EUR 4.1bn (p3)
Today’s Events
BG: Oct C/A / CR: Oct retail trade / KZ: KZT 12bn Fixed rate 2024 GB auction / PL: Exchange offer auction 2015, 2016 and 2021 GBs on offer / RU: Weekly CPI / SK: Nov unemployment rate
EEMEA Markets
Moving towards mid-December Ukraine continues to wait for a gas deal from Russia while most recent statements from the head of Gazprom suggest that a deal may not be reached this year. Meanwhile Ukraine’s balance of payments remains under pressure. The NBU lost USD4.6bn in FX reserves over Sep-Nov and has limited ammunition from here to smooth FX pressures. At USD31bn, FX reserves are USD3.8bn below where they were in mid-08. A scheduled Eurobond repayment this month means that a further decline in December looks inevitable. FX reserves are sufficient to cover 6 months of imports, broadly in line with end-07 ratios. FX reserve coverage of short term external debt stands at 1.26 as of Q2 this year, below where we were at any stage since 2007/08. Local confidence in UAH is weak – 75% of the increase in the deposit base since the start of the year has been in FX rather than UAH. Last year only 47% of the increase in the deposit base was in FX.
At this stage Ukraine is clearly in need of balance of payments support. The authorities’ preference is a gas deal with Russia that not only reduces gas import prices and eases pressure on the trade balance but also provides some form of capital financing for next year, most likely in return for the sale of part of its gas pipelines. Should this not materialize the authorities will rapidly be forced to choose between renewed cooperation with the IMF or a depreciation of UAH. Renewed cooperation with the IMF will involve a gas price hike for households as well as a more stringent budget for next year to cover shortfalls from this year and the potential for lower than expected growth. Though considered politically difficult, we believe that the government would see this as the preferred solution to UAH losses.
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Gillian Edgeworth
UniCredit Research