Norvik Research 21.10.2016

21/10/2016 16:30

Global developments

Yesterday’s ECB communications did not resolve the uncertainty about the expected scaling down of its asset-purchases program. After all policy rates and program parameters were left unchanged, ECB President Draghi denied that any modifications were discussed while ruling out abrupt changes. The euro later weakened 0.5% against USD and is down a further 0.4% today to 1.089.

Stock markets are mixed, after yesterday’s batch of earnings reports in the US failed to sustain the early upbeat momentum. S&P 500 futures are down 0.4%, after the index closed 0.1% lower yesterday. Nikkei 225 is down 0.3% after another earthquake, while CSI 300 is up 0.3%. Euro Stoxx 600 is little changed. The dollar index rose 0.4% yesterday and is up 0.3% today, bringing this month’s gain to 3.3%. 10-year US treasury yields are down 1 bp at 1.74% today.

Oil prices fell yesterday amid conflicting strategy signals from largest producers. Brent prices fell 2.5% yesterday and are up 0.1% today at $51.4/bbl.

Russia and CIS area developments and market colour

The latest version of Russia’s longer-term macroeconomic forecast points to slightly higher growth projections in the near term while keeping mediocre longer-term forecasts. The forecasts, prepared by Ministry of Economy, include three main scenarios. In the base case scenario oil prices will gradually rise to $57/bbl in 2020, $70/bbl in 2030 and $76.7/bbl in 2035. Under this scenario, Russia’s real GDP will grow by 50% over the next 20 years implying 2% annual growth, below global growth in excess of 3%. The stronger growth rates scenario (with average real GDP growth rates of about 4%) would be achieved thanks to improved business climate, support for non-oil exports and raising corporate efficiency.

Ukraine’s parliament yesterday approved draft 2017 budget in the first reading. The targeted deficit, of 3% of GDP, was kept in line with the government’s proposal (agreed with the IMF). Nominal revenue are due to rise by 17%, thanks in part to increases in excise taxes. Key assumption include real GDP growth of 3%, inflation of 8.1% and average UAH rate of 27.2 per USD.

Corporate news

Credit Bank of Moscow, Russia’s ninth largest, plans to issue a Eurobond, expected to be a 5-year USD issue. The forthcoming security has been assigned a “BB” rating from Fitch. Roadshow will start on 24 October. This would be the fourth Eurobond by Russian financial issuers in the past two months. Previous placements were made by Otkritie and Promsvyazbank, with an issue by Tatfondbank expected later this month. Also Alfa Bank may issue a USD perpetual bond. We note that higher oil price and abundant liquidity in external markets are driving appetite for Russian risk at the moment. We expect other financial and non-financial issuers to follow soon, including Gazprom and Lukoil.

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