Rapid economic growth in Ukraine and US
On Ukraine’s domestic market, the National Bank was the star. This week, the regulator is scheduled to make another decision on interest rates.
The markets did not go well this week. Investors and speculators continued selling, as a result of which the S&P500 index lost about 140 points (twice as much as in the previous week) and will open at 4137 points. The markets haven't been this low since May. In the playpen, it's the same old story. The reasons for the fall were again rates, namely their continued rise and events in the Middle East. And again, cynical investors were more worried about rates than World War III, which they did not yet see on the stock market.
Moreover, the visits of all key Western leaders helped keep Netanyahu and co. from immediate revenge. It is not for nothing that oil is again trading just below $90 per barrel. A slight influence on the markets is exerted by the reports of companies, not all of which can please investors. However, the corporate news is trying to pull the market out of the hole – for example, Amazon, whose reports were a pleasant surprise.
Things remain very positive in the U.S. economy itself. The latest data on quarterly GDP showed growth of 4.9%. However, the peculiarity of American statistics is that to obtain comparable figures, for example, with Ukraine, it is necessary to divide this figure by four – to bring the data to quarterly. However, this figure remains impressive even with such manipulations, showing that the U.S. economy is as far from recession as Shakhtar (Ukrainian football club) is from Barcelona. This allows the head of the U.S. Treasury, formerly the head of the Fed, to write off the rise in interest rates on the good economic situation, still focused on a soft landing, which last year, against the background of record inflation, seemed almost a miracle. The U.S. House of Representatives was finally able to pick a new speaker. Even though he is a Trumpist, it still brings closer both a resolution of the budget crisis, which is essential for markets, and a vote to support Ukraine, which is vital for Ukraine much more than it is for investors (except for investors in Ukrainian debt).
The latter (investors in Ukrainian debt) are in no hurry to rejoice yet. Since Johnson (the wrong Johnson, alas), who has become the new speaker, seems to love Trump more than his mother, at least in public, many in Ukraine have already begun to sprinkle ashes on their heads, predicting a complete disaster. At the same time, before and after the vote, the new speaker did not oppose aid to Ukraine (probably a condition for normal Republicans to support him). He is just singing the old song of the Republican party that money loves counting and control. So even though there appears to be no unified vote for aid to Israel and Ukraine, and the assistance will be split up, nothing so far portends a scenario where there will be no vote for the assistance at all. At stake is $61 billion.
Anyway, the Ukrainian Eurobond segment followed the global markets all week, which means that it was falling against the background of rising rates around the world.
On the domestic market, the National Bank of Ukraine (NBU) was the soloist. This week, the regulator is scheduled to make another decision on interest rates. The market consensus was that the NBU would reduce the rate by two p.p. to 18%. Against this background, there was a deficit in the local bond market, which helped the Ministry of Finance to reduce yields when placing new debt. Then came surprises from the regulator, which generally, analysts and bankers are not accustomed to considering a good tone. First, the market was surprised by the aggressiveness of the NBU, which reduced the rate from 20% to 16% at once. Then, it was surprised by its creativity when it became clear that the real rate reduction, i.e., the cost of money for banks, did not happen in principle. That will contribute to the stability of the hryvnia, which strengthened at the end of the week – both on the interbank market and the black market. Let it be by a couple of kopecks, but the fact remains.
The creativity of the National Bank will now reduce the pressure on the regulator from politicians, who usually see the discount rate and start comparing it with other countries in the world, especially those where there is no full-scale war, accusing the NBU of stifling the economy. Every such politician will now get a presentation with a chart of the discount rate, causing wild envy among the recent heads of the Central Bank of Turkey, before Erdogan's significant reversal towards common sense in the economy, who could not guess to defend the independence of the regulator in such a way against the Turkish sultan and his economic views.
Turkey indeed has enough common sense in the economy, and they continue to raise the discount rate even more sharply than the Ukrainian Central Bank is cutting the rate on paper. This week, the rate there rose to 35%, showing how painful it is to treat a neglected chronic disease. As if hinting to Ukrainian politicians to stay out of the NBU's work. Ukrainian GDP, as it turns out, is growing even better than American GDP. The growth figure for the third quarter, when GDP added 9% in September, better not be shown to Trump and co.; otherwise, they will start demanding that Ukraine pay for a wall on the border with Mexico, not knowing how we know how to build and especially finance walls on the border. Growth in Q3 is primarily due to good weather, which allowed for a much higher-than-expected harvest. The NBU must revise GDP growth for this year, now expecting the economy to grow by somewhere closer to 5%.
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