The dollar is getting cheaper against the euro and the pound sterling and is getting stronger against the yen.
Signals of a weakening U.S. economy and recent comments from Federal Reserve (Fed) leaders give investors hope that the U.S. Central Bank will continue to slow the pace of raising the benchmark interest rate.
Federal Reserve Board of Governors member Christopher Waller said last Friday that the central bank has already raised the rate substantially – and “it’s time to slow down, but not stop” its hike.
“I am in favor of a 25 basis point (bps) rate hike at this point in the Fed’s upcoming meeting,” Waller said during a speech at the U.S. Council on Foreign Relations.
“We still have a long way to go to get inflation back to the 2% target, and I believe I will support further tightening of monetary policy,” Waller was quoted by Market Watch.
Federal Reserve Bank of Kansas City (FRB) President Esther George told Bloomberg TV that while inflation has slowed, it is still well above the target.
“To stay true to our price stability mandate, we need to be a little more patient,” she said.
In December, the Fed increased the rate by 50 bps. – To 4,25-4,5% per annum after its rise by 75 bp at the end of the previous four meetings, and the market is waiting for a further slowdown in policy tightening, taking into account signals of weakening inflation and economic activity in the U.S.
The European Central Bank (ECB) may have to continue raising the rate at a rate of 50 bp in both February and March, ECB Governing Council member and Dutch central bank governor Klaas Knott told the Dutch broadcaster WNL. According to Knott, the rate hike will continue in the coming months.
In a separate interview he gave to the Italian newspaper La Stampa, Knott said that it was “too early” to talk about the possibility of a slowdown in the ECB’s rate increases by the summer.
The ECB raised key interest rates by a total of 250 bps last year. Experts polled by Bloomberg expect the ECB’s deposit rate, currently at 2 percent, to eventually rise to 3.25 percent.
The ICE-calculated index showing the dollar’s dynamics against six currencies (euro, Swiss franc, yen, Canadian dollar, pound sterling and Swedish krona) lost 0.22% in trading Monday, while the broader WSJ Dollar Index lost 0.09%.
The euro/dollar pair is trading at $1.0893 as of 8:15 a.m., up from $1.0857 at market close on Friday.
The pound/dollar exchange rate rose to $1.2415 from $1.2394 the day before.
The dollar’s value against the yen is 129.92 yen against 129.5 yen in the previous session.
The board of directors of Saudi air carrier Flynas has approved the opening of the company’s units in two more countries as part of its plan to become the largest low-cost carrier in the Middle East and one of the world’s largest budget carriers.
Flynas, which is headquartered in Riyadh, will seek operating certificates in two other states, expecting to double its operations, the company said in a statement cited by Bloomberg. However, the company did not specify what countries it was talking about.
Saudi Arabia has invested heavily in the aviation sector as it seeks to make the economy less dependent on oil and become one of the world’s largest tourist destinations by 2030. The plan includes building a new airport in Riyadh and creating a new airline.
Flynas plans to increase its purchases of airliners to 250, and the company is considering buying wide-body aircraft, including the Boeing 787 and A350.
Flynas began flying under the Nas Air brand in 2007. The company is partly owned by Kingdom Holding, an investment company controlled by Saudi Prince Al-Waleed bin Talal.
Oil prices were falling Monday amid low activity in the Asian session due to the long weekend in China in observance of the New Year according to the lunar calendar.
Hong Kong and Singapore markets are also closed.
The price of March futures for Brent crude oil on London’s ICE Futures Exchange stood at $87.35 per barrel by 7:15 a.m. Monday, up $0.28 (0.32%) from the close of the previous session. Those contracts rose $1.47 (1.7%) to $87.63 a barrel at the close of trading on Friday.
The price of WTI futures for March crude oil at electronic trades of NYMEX fell by that time by $0.23 (0.28%) to $81.41 per barrel. By closing of the previous session the cost of these contracts grew by $1.03 (1.3%) to $81.64 per barrel.
Brent gained 2.8% and WTI gained 1.8%.
Traders continue to assess the prospects for oil demand in China after the lifting of quarantine restrictions. During the holidays, which will last until the end of this week, many people travel, which should cause a significant increase in demand for fuel, and after the weekend experts expect an increase in industrial activity in China, said Bloomberg.
In addition, the market remains focused on the situation in Russia after the entry into force of the embargo on oil supplies from the country and the introduction by the G7 countries of a price ceiling in response to a full-scale war unleashed by Russia against Ukraine.
According to the International Energy Agency (IEA), the total volume of oil exports from Russia in December fell by 2.5% compared to November, to 7.8 million bpd, as crude supplies to the EU decreased.
Russian oil exports fell 6 percent last month to 4.7 million bpd, the lowest level last year. At the same time, petroleum product sales rose 3.3 percent to 3.1 million bpd.
According to the IEA forecast, by the end of the first quarter, Russian oil production will be about 1.6 mln bpd lower than before the Russian invasion of Ukraine.
The National Bank of Ukraine on 19 January revoked the license of Standard Capital Financial Company LLC to provide factoring services on the basis of the received application, according to the regulator’s website.
In addition, six non-bank financial institutions were excluded from the State register of financial institutions due to the decision of the National Bank to cancel all of their existing licenses to provide financial services: PO “Pawnshop goods Garashov R.A. and company”, LLC “Galician financial company”, PO “Pawnshop “Primary capital” involving JSC “Logos” and company”, LLC “Solano Finance”, LLC “FC “Vilardo”, CC “Pridunavie.
Also from the State Register of financial institutions on the basis of the submitted documents was excluded LLC “FC “Standard Capital”, and on the basis of the received application – PO “Pawnshop PE “Basis” and company”.
Electricity imports on January 21 will amount to almost 7 thou MWh – it is 290-291 MWh every hour, according to data on the website of the Continental Europe System Operators Network ENTSO-E.
According to the information, the electricity is supplied from Slovakia.
As reported on January 21, the interstate section of 290MW for every hour of the day was booked by “D.Trading”, 5MW for all hours of “ERU Trading”, as well as 1MW for three hours from 16:00 to 19:00″ August.
For Jan. 22, D. Trading and ERU Trading booked the same capacity plus 1 MW each for the two nightly hours of NAP Community.
A total of 300-350 MW was auctioned, depending on the hour of the day, with a buyout price of 0 UAH/MWh.
According to DaM Europe in the established JSC “Market Operator” Telegram channel, the average price for electricity on the Slovak Republic on January 21 – 130.83 EUR / MWh, in Ukraine, the price of electricity BASE period on the DAM – 83.71 EUR / MWh.
The import supply on January 21 is the third in January reflected on the ENTSO-E website. The first was on January 15 – a total of 655 MWh: three hours of 50 MW (from 02:00 – 05:00), the following hours of 125 MW, 170 MW and 150 MW, and from 21:00-22:00 another 20 MW. D. Trading (130 MW each for all hours), ERU Trading (20 MW each for all hours), and Nextrade (20-30 MW depending on the hour) booked the section for that day. The second was for January 20, 220 MW in the last hour of the day, the cross-section for which was bought by D.Trading.
The Cabinet of Ministers of Ukraine in early January approved a regulation on the peculiarities of electricity imports during the autumn-winter period of 2022/2023, which as an incentive for businesses to import more expensive European resource gave guarantees of non-disconnection on the volume of imported electricity. According to Energy Minister Herman Galushchenko at a briefing on 20 January, in order to receive guarantees of non-disconnection, businesses must import a significant amount of electric power in accordance with their consumption, indicating that “it cannot be 1 MW”.
International rating agency Fitch Ratings has affirmed Ukraine’s Long-term foreign currency Issuer Default Rating (IDR) at “CC”, the agency said in a statement on its website.
“The affirmation of Ukraine’s ‘CC’ long-term foreign currency IDR reflects Fitch’s view on the likely further restructuring of its commercial debt in foreign currency, given the scale of economic damage from the war with Russia and the significant financial damage associated with it,” the agency explains its decision.
Fitch believes that burden sharing with commercial creditors is a likely condition for large financial assistance provided by international official creditors.
The agency notes that a 24-month grace period on Ukraine’s Eurobonds, reached in August 2022, provided relief on servicing Ukraine’s $6 bln external debt, but leaves unresolved medium-term debt sustainability risks. It estimates that sovereign foreign debt service will rise to a relatively high level of $5.4 billion in 2024 (excluding $3.5 billion of deferred interest payments on Eurobonds that can be capitalized) and $7.0 billion in 2025, laying the groundwork for a possible new restructuring.
Fitch forecasts Ukrainian GDP growth of 2% in 2023, as the ongoing war prevents the return of significant numbers of refugees or large-scale investment, and power outages following Russian shelling create an additional constraint. The agency recalls a GDP decline of about 31 percent in 2022 and a net outflow of 8 million people, according to the UN, while pointing to a possible overstatement.
The agency predicts that inflation will fall to 21% in 2023 from 26.6% in 2022 as lost production capacity, power shortages, and only gradual elimination of supply chain disruptions offset weak domestic demand.
Fitch expects the war to continue in 2023 within its current broad parameters, as there are no politically credible concessions in the near future that could form the basis of a negotiated settlement. The agency believes that President Putin’s goal remains to undermine the sovereign integrity of the Ukrainian state, while Ukraine’s successful counterattacks in Kherson and Kharkiv make it even less likely that it will cede its territory to Russia.
According to Fitch, although the strategic advantage has shifted more in favor of Ukraine in recent months, neither side appears to have a decisive military advantage to achieve the objectives that could lead to a protracted conflict. “Over a longer period, the prospect of a negotiated settlement becomes more likely as the costs to both sides increase, although this may well take the form of a ‘frozen conflict’ rather than a sustainable peace,” Fitch admits.
Fitch forecasts the deficit to shrink to 15.2% of GDP in 2023 from 20.1% of GDP in 2022 because of the partial implementation of budgeted cuts in real terms to social spending and slightly higher grants, but defense spending remains well above the government’s target. “We expect high deficits in the medium term due to reconstruction needs, increased social spending, including on war veterans, and increased prewar defense spending,” the agency adds.
Fitch also estimates a 37 percentage point (pp) increase in total government debt to GDP in 2022 to 80.2% (excluding government guarantees of 7.5% of GDP) and forecasts it will rise to 84.0% by the end of 2023. It adds that the share of government debt in foreign currency has risen to 66%, which has increased currency risks, although the share of long-term concessional debt has also increased.
The agency expects the goal of raising $38bn in external budget funding in 2023 to be fully achieved, and the local currency public domestic debt rollover ratio, which fell to 65% in 2022, will partially recover this year thanks to recent changes in reserve requirements, further growth in government bond yields and the current record high level of bank liquidity, which will reduce the National Bank financing of the state budget deficit.
“Little is currently known about sources of funding beyond this year’s end due to risks associated with potential donor fatigue, increased stress in the banking sector weakening demand for domestic debt, and restrictions on the use of NBU fiscal funding if inflation remains high and external financing pressures resume,” Fitch notes/
It adds that the size of capital outflows from the private sector remains relatively stable, restrained by capital controls, and international reserves stood at $28.5bn at the end of 2022, up from $27.6bn at the end of February. Fitch forecasts that the current account surplus will shrink to 2.6% of GDP this year amid higher import growth, and international reserves will be 3.8 months of current external receipts at the end of 2023, down from 4.0 months at the end of 2022.
The local currency IDRs are affirmed at “CCC-“: the lower default risk than for foreign currency debt reflects a greater barrier to including local currency debt in any further debt restructuring, given that non-residents hold only 5%, while 55% is held by the NBU and another 32% by the domestic banking sector (half owned by the state), for which financial stability risks may be associated.
“We also do not expect strong international pressure to restructure domestic debt, partly because of additional concerns that this could undermine efforts to revive demand for new government debt issuance,” Fitch said.
