Norvik Research 01.11.2016

01/11/2016 17:16

Global developments

Strong PMI data in China have supported Asian stocks while pushing yields on government securities higher. China’s officially measured manufacturing PMI came out at 51.2, compared to consensus of 50.3, the highest level since July 2014. The Caixin / Markit PMI reading was 51.2, higher than consensus of 50.1. Japan’s manufacturing PMI came out at 51.4 in October after 51.7 in September. S&P futures are 0.3% higher, Euro Stoxx 600 is flat, CSI 300 is 0.7% higher while Nikkei 225 is up 0.1%. 10-year US treasury yields increased 4 bp to 1.86%. Yields on 10-year bunds rose 1bps to 0.18%. Bank of Japan refrained from expanding monetary stimulus and kept its annual target amount of bond purchases at 80tn yen. BoJ aims to maintain 10-year government bonds yields at around zero.

Oil prices declined further yesterday as market players continue to reflect on risk of a possible OPEC’s failure to agree output cuts in November. Crude oil inventories are projected to have increased by 1.5 mn bbl in the previous week. Brent prices fell 2.8% to $48.3/bbl yesterday and are higher 1.6% today. According to preliminary data, OPEC’s total output increased in October to 33.82 mn bbl/day from 33.69 mn bbl/day in September due to higher production in Libya, Iraq and Nigeria.

Russia and CIS area developments and market colour

Russia’s manufacturing PMI data for October point to a continuing rebound in manufacturing. Headline PMI reached 52.4, a 4-year high, above 51.1 in September and consensus of 50.9. This was the third consecutive positive reading. The upturn was due to increases in production, new orders and outstanding business while inventories decreased and cost pressures intensified. The new exports orders subcomponent improved to 45.1 from 43.3 in September while indicative of a further decline in seasonally-adjusted terms.

The rouble is 0.6% stronger at 63.0 against the dollar. OFZ yields are 3-6 bps tighter today. Russia and Kazakhstan longer-term sovereigns are about 1 bp wider. Ukraine sovereign yields are 2-9 bps wider.

Corporate news

NLMK has reported strong Q3 results. EBITDA increased by 46% QoQ to $673mn (versus consensus for $626mn). Revenue rose 19% to $2.2bn due to higher volumes and prices, and a better sales structure. Net income in Q3 totaled $385mn (2-fold increase QoQ) against forecast of $356mn. The company announced plans to pay dividends of $350mn in Q3 2016 (91% of net income) boosting stock prices by 6-7%.

Norilsk Nickel has scaled down nickel production guidance. Norilsk Nickel plans to produce 195-200k tonnes of nickel from its own ore in 2016, down from 212k tonnes initially planned, the lowest level since 2004. The reduction in output is caused by a shutdown of a nickel plant producing some 120K tonnes a year.

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