Norvik Research 05.12.2016

05/12/2016 17:04

Global developments

The Italian government’s defeat in Sunday’s referendum led to resignation of Prime Minister Renzi and volatility of the euro. Constitutional changes designed to simplify the legislative process were rejected by the electorate on a large margin (59% voted against) that opinion polls again failed to predict. Italian banking sector assets are perceived to be the most vulnerable to the resulting uncertainty, including due to a possible delay in recapitalization of the troubled Monte dei Paschi di Siena bank. Initially the euro lost 1.5% against the dollar but later reversed the losses and is up 0.4% on the day at 1.071.

Risk assets have largely ignored the referendum’s result. Euro Stoxx followed the euro’s trading pattern and is currently some 0.2% above Friday’s close. Sentiment was supported by the relatively strong Eurozone data. Retail sales growth accelerated to 2.4% YoY in October, from 1.1% YoY in September, above consensus forecast of 1.7% YoY. Markit services PMI came out at 53.8 slightly lower than consensus and September’s reading of 54.1.

US treasury yields widened 4 bps today to 2.42% after rallying 7 bps on Friday on the back of weaker-than-expected labour market data. S&P 500 futures are 0.4% up today. The dollar is marginally lower after initial gains.

Oil prices have reached a 16-month high. The market’s focus has shifted to implementation of last week’s OPEC deal, including whether Russia and other non-OPEC producers will be able to deliver cuts of as much as 600K bbl/day, or 50% of OPEC’s own target. OPEC and non-OPEC envoys are now scheduled to meet in Vienna on 10 December. Baker Hughes rotary rigs number increased from 474 to 477 in the previous week. Brent prices are 1.2% up today at 55.1 after rising 1.0% on Friday.

Russia and CIS area developments and market colour

Russia’s services PMI for November was at a 4-month high. The index reached 54.7, above consensus of 52.5 and September’s reading of 52.7 extending services sector expansion to the 10th consecutive month.

The rouble is 0.2% stronger at 63.7 against the dollar. OFZ yields are 2-5 bps lower, after tightening 1-2 bps on Friday. Russia and Belarus sovereign Eurobond yields are 1-2 bps and 3 bps wider, respectively. Kazakhstan yields are 5 bps tighter, while both Azerbaijan-24 and Armenia-25 are 1-2 bps tighter. Ukraine sovereign yields are 2-9 bps tighter with Ukraine-19 and Ukraine-24 yields at 8.74% and 9.33% respectively.

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