Norvik Research 16.11.2016

16/11/2016 17:30

Global developments

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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