As a result, the S&P500 index lost almost 180 points and will open Friday morning at 5011 points. The pressure on the market was driven by a change in the narrative regarding interest rate dynamics. Namely, the market realized no rapid decline in the Fed’s key interest rates would take place. The whole point is inflation, which hasn’t yet been curbed. And it [market] was very upset. As a result, there was a sell-off, which led to a decline during all five trading days. The downward trend continues. However, another decline will already be associated with a new round of escalation in the Middle East. Last week markets were very turbulent due to a potential retaliatory strike from Iran, which had been warning about it for two or three weeks. And they hit with everything they could. As it turned out, their bark is scarier than their bite. As a result, thanks to the help from the United States, France, and the United Kingdom, almost nothing of what was able to fly from Iran has reached Israel. And the market eased off. Because Israel had no reason to take revenge like after Oct. 7, 2023, when emotions were involved.
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Israel had been thinking for almost a week about how to respond to show strength to Iran and to cheer up its own citizens, but also avoid upsetting [U.S. President Joe] Biden and ever cautious [U.S. National Security Adviser Jake] Sullivan. Such calm eased the investors and speculators off, and even oil prices dropped significantly. However, not to the $80 level that oil has seen for months. As a result, a limited strike was launched against Iran overnight into Friday. And at night, the markets initially got really scared, which led to a sell-off among those who were awake for the events. And then the markets realized that Israel wasn’t trying very hard and eased off a bit. However, both the markets were lower, and oil was higher on Friday morning, because the risk of further escalation remains. A barrel of Brent oil cost just below $89 on Friday morning. Although the bearded men from Iran have already managed to declare that Allah helped them to cope with the “vile blow from Satan’s followers.”
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The Ukrainian segment of foreign debt was under pressure from global markets. As a result, Ukrainian government bonds lost about 1.5 points. The options feel a little better thanks to the analysts of a U.S. bank that released a study on their positive dynamics. The fall of Ukrainian sovereign bonds took place amid a real breakthrough with U.S. aid. House Speaker Mike Johnson seems to have been possessed by the spirit of [former U.S. President] Ronald Reagan, and after months of stalling, he came up with his version of aid to Ukraine, Israel, and Taiwan. If he were a student, one could credibly accuse Johnson of plagiarism. Because his [aid] package is the spitting image of the one that Biden submitted in late 2023 and that the Senate voted on long ago. Indeed, it included a new clause, which provides that financial assistance to Ukraine will now be in the form of a loan and not a grant. But this loan is merely a formality, and no one really expects that it will be paid off, because so far no one has even bothered to announce the terms of this loan, i.e. period and interest rate.
But what’s possible is for the U.S. president to write off this debt in two iterations. It’s interesting, of course, whether the IMF [International Monetary Fund] will add it to its model that calculates the debt-to-GDP ratio, but this worries mainly the owners of Ukrainian Eurobonds, because it can directly affect what the Ukrainian Finance Ministry will come to them with in the debt restructuring process.
Also formally, for some reason, it was outlined that these funds cannot be used to pay state pensions. It’s difficult to say what’s the beef the Republicans have with Ukrainian seniors, but the Ukrainian government will gladly say that it spent this money on teachers and doctors, while pensions were financed by the aid from the EU. If everything goes according to plan, the aid package will be signed into law by the end of the week. [U.S. presidential candidate Donald] Trump is also keeping his temper, only whining that the Europeans should help Ukraine more. Actually, nobody in Ukraine opposes it. So, what it means is that they threw Trump a bone and included a loan clause in the terms, allowing him to explain to his constituents why he won again and why they delayed aid for six months. And maybe if they had known half a year ago what a mess they were getting into, they would have simply voted and not dragged Ukraine into their election cycle chaos. There are, of course, even crazier Trump supporters making insane amendments, but those were summarily discarded before the final vote.
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On the domestic market, the hryvnia [national currency] has weakened a bit. As a result, the interbank market is trading slightly higher than UAH 39.6 per dollar at the end of the week, while the black market is already trading on the verge of the so-called psychological threshold of UAH 40 per dollar, sometimes even crossing this threshold. And if that wasn’t enough, the IMF helped, whose analysts released a 5-year exchange rate forecast, which, of course, is very funny for Ukrainians, like any 5-year forecast here. But the IMF analysts have a set form, and they must fill in the blanks. So, having made a number of assumptions, including that the war will end in a year (they made exactly the same assumptions last year and the year before last, because they have to make an assumption), they continued the trend. And they stirred up ordinary Ukrainians by this forecast with the figure of UAH 50 per dollar. However, the math says these are very minimal annual rate changes, which are easily leveled by domestic government bond yields, but a psychological threshold is a psychological threshold. And the psychological state of Ukrainians isn’t very good now.
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Read the original article on The New Voice of Ukraine
Section: Opinion
Author: Eric Malinowski
