Norvik Research 23.09.2016

23/09/2016 11:41

Global developments

Global stocks retreated after yesterday’s rally as oil prices fell. S&P futures are down 0.1% after the benchmark index closed 0.7% up yesterday. Euro Stoxx 600 is 0.6% lower after yesterday’s 1.6% advance. Chinese CSI 300 is 0.5% lower. The dollar index is up 0.1% today after losing 0.2% yesterday. The US 10y yields are down 1 bp at 1.61% today. Bloomberg commodity index is 0.5% weaker.

Oil declined as doubts about a successful outcome of the OPEC meeting next week are rising. Saudi Arabia and Iran are reported to hold a second day of talks in Vienna but there is still no news on the progress. Brent prices are down 0.8% at $47.3/bbl.

Russia and CIS area developments and market colour

Russia has successfully tapped its 10-year Eurobonds for $1.25bn. The strong demand ($7.5bn) has allowed the issuer to reduce the initially indicated yield of 3.99% to 3.9% eventually, still a premium compared to 3.86-3.93% in the secondary market. Effectively all of the tap issue was placed with foreign investors, a sign that non-residents are comfortable with newly issued Russia's sovereign debt, following the inclusion of this issue into the list of Euroclear-eligible securities.

The Russian government may restrict payment of pensions to high-earning working pensioners. The most radical proposal would eliminate payments to those with annual income in excess of RUB 0.5mn. This initiative, together with suggestions to introduce higher income and VAT taxes, points to concentrated efforts to boost budget revenues.

The rouble is 0.4% weaker today at 63.9 against the dollar. OFZ yields are higher 2-6 bp today after tightening 1-6 bp yesterday. Russia and Kazakhstan longer term yields are 0-1 bp wider today, Ukraine is broadly flat, while Azerbaijan-24 and Armenia-25 are 1 bp wider.

Corporate news

Alrosa has materially increased diamond sales in August. Rough diamond sales reached $243 mn in August, 58% higher YoY. In the first 8 months of 2016 the company sales reached $3,161 mn or 21% higher YoY. The particularly strong growth in August is explained by a low base effect due to a slump in sales in Q3 2015. According to our estimates, the growth in revenue in the first 8 months was driven by increased selling volumes, which were up 23% YoY as company tapped into its diamond inventories, while selling prices were down 2%. Alrosa has noted a stable market recovery trend since end-2015, although company’s outlook remains conservative.

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