The dollar and yields on government securities globally rose again in the wake of strong consumption data in the US. Retail sales for October (excluding auto and gasoline) rose 0.6% MoM, compared to consensus of 0.3% MoM, while unadjusted sales volumes showed even stronger increases. The market-implied probability of a rate hike in December reached 94%. Yields on 10-year US treasuries added 4 bps today to 2.26%; yields on 30-year bonds touched 3.00% today, before declining to the previous close of 2.96%.10-year Japan’s government bond yields reached the highest level since February. The dollar index rose a further 0.1% today, after a similar increase yesterday. In the UK, October inflation was 0.9% YoY against consensus of 1.1% YoY. The pound is down 0.1% against the dollar at 1.245. S&P futures are down 0.2% after the benchmark added 0.8% yesterday, Euro Stoxx 600 is up 0.2%. Nikkei 225 is 1.2% higher, while CSI 300 is flat. Bloomberg commodity index is 0.4% lower. Base metal prices are lower following the recent rally.
Oil prices rose sharply yesterday but eased again today, on higher US inventories. Brent prices rallied 5.8% yesterday to $47.0/bbl on evidence that OPEC countries are still aiming to clinch a deal on country-specific output quotas at their meeting in late November. The American Petroleum Institute reported that inventories increased by 3.5 mn bbl over the past week, above the forecast for +1 mn bbl. Brent prices are down 0.7% on the day at $46.6/bbl.
Russia and CIS area developments and market colour
Russia’s federal budget deficit widened marginally in October. On our estimates, on a 12-month rolling basis, budget deficit rose to 3.4% of GDP, from 3.3% of GDP in September. Total revenue fell from 14.8% of GDP in September to 14.6% of GDP in October, extending the steady decline from 20.3% of GDP in December 2014. Energy revenues contracted to 5.4% of GDP in October from 5.5% in September, non-energy revenues eased from 9.3% of GDP to 9.2% of GDP over the same period. Expenditure declined to 18.0% in October from 18.1% in September 2016. MinFin’s latest projections call for deficit to widen to 3.9% of GDP in December (if privatization receipts are treated as revenue).
The rouble is 0.9% weaker today at 64.9 against the dollar, after rising 2.6% yesterday following the spike in oil prices. OFZ yields widened by 2-10 bps today, following yesterday’s rally. MinFin is holding two auctions today, for RUB 10bn of May 2019 OFZ and RUB 10bn of January 2015 floater. Russia and Kazakhstan longer-term sovereign Eurobond yields are about 2 bps wider today. Ukraine Eurobond yields are broadly flat today. Azerbaijan-24 is 8 bps wider while Belarus-18 is 16 bps tighter.
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