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Monday, 23 October 2017

Emerging EMEA: Ukraine deadline moved to next week

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I think we’ve seen this script before. A government is on the verge of default. Statements are made about a last-chance meeting. Said meeting is either cancelled or nothing substantive emerges from it. More statements are made about further last-chance meetings.

We saw it with Greece and it appears we’re seeing the same with Ukraine. A meeting was supposed to take place between Ukraine and its key creditors in London today but after investors said they needed more time to the government agreed to delay proceedings.

In a statement released yesterday Ukraine said it was willing to postpone the meeting to early last week.

“Failure to reach an agreement … early next week would force Ukraine to implement alternative options for financing its IMF-supported program,” it said in a statement.

“Due to these constraints, it is also the last opportunity to reach a full agreement in advance of the September and October Eurobond amortisations and next IMF review now planned for September.”

Spokespeople for the creditor group declined to comment on the Finance Ministry’s latest statement.

Even though Ukraine has put forward a new proposal and creditors appear to accept a small haircut of 5%, both sides seem far apart.

Analysts are shortening the odds of a debt moratorium and default, though as we saw with Greece a temporary solution cannot be ruled out.

Elsewhere, the oil price is back below US$50, with a barrel of Brent crude at US$49.5 this morning – the lowest level since late January. Still, the market appears to be more obsessed with rates following Dennis Lockhart’s comments on Tuesday.

Yesterday, we had ADP and ISM Mfg data to pore over. ADP had little effect but the ISM data definitely gave the market an excuse to price in a September move.

Hence we saw 10-year Treasury yields move up to 2.29% having been at 2.14% on Tuesday. And that dragged Bunds and other European sovereigns down a point. As was the case on Tuesday, though, there was little equity or credit reaction.

And they had little effect on Asia either. In China, the Shanghai Composite is off around 0.8%, but it had been down over 2% in early trade as retracement from Tuesday’s rally continued. The Hang Seng is also down around 0.7%, but the Nikkei ended the day up 0.25%, although it had been up as much as 1% earlier in the session.

In Europe, Bunds and BTPs are slightly lower, as are equity futures. Synthetic credit markets are fairly flat with the Main unchanged at 63bp, the Crossover flat at 291bp and the Senior Financials flat at 73.25bp.

There’s not much else to focus on today – unless you’re a Gilts trader with the MPC rate decision, the minutes of that meeting and the Quarterly Inflation Report all being released at Noon.

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