Norvik Research 25.08.2016

25/08/2016 15:50

Global developments

Stock markets globally are mostly weaker ahead of tomorrow's monetary policy comments by Fed Chair Yellen. S&P futures are marginally lower today after a 0.5% drop in the index yesterday; Euro Stoxx 600 is down 1.1% giving up most of this week’s gains. Nikkei 225 is down 0.2%. Chinese CSI 300 fell 0.5%.The dollar index is down 0.1% while 10-year US Treasury yields are 1 bp lower today. Bloomberg commodity index is down 0.1%.

Oil prices are broadly flat today. The EIA reported crude oil stocks in the US up by 2.5 mn bbl in the previous week, rather than +4.5 mn bbl estimated by API. Brent prices are flat today at $48.9 after declining yesterday by 1.8%.

Russia and CIS area developments and market colour

Russia’s central bank projects that a shortage of liquidity in Russia's banking sector will persist through the end of the year. According to the regulator’s latest monthly liquidity report published yesterday, the banking system’s demand for CBR repo operations in July remained unchanged from the previous month. The CBR estimated liquidity deficit at RUB 1tn as of end-July (calculated as difference between RUB 1.4 tn of banks’ liabilities on repo operations and RUB 0.4tn of banks’ deposits at CBR) and expects that deficit will persist until the end of 2016. The report also noted lower correlation of the rouble’s exchange rate with oil prices in July due to increased sales of FX revenues by exporters, for the purposes of dividend payments.

Weekly inflation in Russia is back in positive territory. Inflation in the week to 22 August was 0.1% wow, after 0.0% WoW in the previous week. On our estimates, headline inflation stayed at 7.1% YoY. The recent inflation dynamics together with the government’s decision to postpone pensions indexation are supportive of a policy rate cut on 16 September, in our view.

MTS has opened an order book for RUB 10bn of August 2031 bonds. The latest coupon range is 9.4-9.5%, compared to 9.60-9.75% indicated initially.

The rouble is 0.7% stronger today at 64.8 against the dollar. OFZ yields closed 1-3 bps wider yesterday and are up to 4 bps lower today. Yields on Russia’s and Kazakhstan’s longer-term Eurobonds are 1bp tighter today. Ukraine’s sovereign Eurobonds are little changed today with Ukraine 19 yield widening 1 bp to 8.3%. Belarus 18 is tighter 6 bps today after widening 14 bps yesterday. Azerbaijan 24 is flat while Armenia 25 is 1 bp tighter.

Corporate news

The Russian government aims to increase tax take from the country's oil and gas companies by RUB 320 bn next year. According to a report in today's Vedomosti daily, the Finance Ministry has proposed extending this year's higher tax liabilities on the oil sector (worth RUB 200bn) into 2017 and increasing Gazprom's tax bill by RUB 170bn. The net increase of tax burden on the oil sector will be close to RUB 150bn, as the impact of other tax measures will compensate some RUB 50bn for oil companies. The increase in tax burden on the hydrocarbon sector is expected to materialize through higher mineral extraction taxes. A decision on this increase has reportedly been made already. This increase in tax take should not result in a material deterioration of credit profiles for the largest companies in the O&G sector (higher taxes will be partly compensated by lower dividend payments), thus the net negative effect on cash flows will be relatively small. Nevertheless, frequent changes in tax rules increase uncertainty for companies and investors in this key sector and will diminish the attractiveness of investments into Rosneft and Bashneft ahead of their planned privatization.

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