Norvik Research 07.10.2016

07/10/2016 16:11

Global developments

The dollar rose further ahead of today’s US labour market data. Market consensus is for a monthly increase in non-farm payrolls of 172K (the data are due at 12.30 GMT). The dollar index is 0.2% above yesterday’s close. Euro Stoxx 600 is 0.4% lower, S&P futures are down 0.2%, US 10y yields flat at 1.75%, the highest level since June. The pound suffered a 6% drop against the dollar in early hours of this morning but recovered most of these losses, to trade at 1.236 against the dollar (2% down from yesterday’s close).

Oil prices are slightly weaker today, following a nearly 2% increase yesterday. Brent prices are down 0.1% today at $52.5/bbl.

Russia and CIS area developments and market colour

The Russian Government has issued a directive for Rosneft to buy 50.1% of Bashneft by 15 October for not more than RUB 330bn. The government’s stake in Bashneft was initially supposed to be sold at an auction but instead the government appears to have accepted the sole bid in excess of the available valuations of this stake. The other large privatization transaction earmarked for the remainder of this year (most likely November at this stage) is the sale of the 19.5% stake in Rosneft itself, for estimated RUB 700bn. Media reports suggest is that the most likely outcome of the latter transaction is Rosneft’s own purchase of this stake, with the aim of reselling it to a strategic investor at a later stage.

The main focus for investors in these transactions is their potential impact on the rouble and liquidity in the local market (privatization payments are due in roubles). First deputy CBR Governor Yudaeva said in a Bloomberg interview that the CBR expects only modest positive impact on the rouble, set to be temporary.

The rouble is 0.5% weaker at 62.4 against the dollar. OFZ yields are 2-7 bps wider today after widening 3-8 bps yesterday. Russia and Kazakhstan sovereign Eurobond yields are 1-2 bps wider today after widening 1-4 bps yesterday, Azerbaijan-24,Armenia-25 and Belarus-18 are 1,1 and 4 bps tighter.

Corporate news

Alrosa has reported strong diamond sales in September. Rough diamonds sales stood at $435mn in September, a nearly 80% increase from August, while sales of polished diamonds were $18.9mn, a 3-fold increase. Diamond sales for Q3 2016 reached $1.01bn, 85% higher YoY. According to the company’s statement, demand was strong for almost all categories of raw diamonds.

We note that diamond sales have been growing in YoY terms since Q1 2016, returning in Q3 to average levels seen in 2014-H1 2015. We expect that this strong performance should help the company to further reduce excess diamond inventories accumulated in H2 2015. Alrosa will report operating results for Q3 and 9M 2016 on 20 October.

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