Norvik Research 11.07.2016

11/07/2016 16:06

Global developments

Stock markets globally are posting solid gains on the back of very strong US payrolls data and expectations of fresh near-term stimulus in Japan. The 3-month moving average of US non-farm payroll increases jumped to 147K, from 114K following the weak May data. The election victory by Japan’s coalition parties has prompted Prime Minister Abe to declare that he will propose an additional stimulus package to the cabinet tomorrow. Nikkei 225 jumped 4%, Hang Seng is up 1.5%, Shanghai Composite rose 0.4%. Euro Stoxx 600 is up 0.8%. S&P futures are 0.3% higher, ahead of today’s beginning of a new reporting season. The Bloomberg commodity index is gaining 0.3%. GBPUSD is 0.2% higher at 1.298. Gold prices are down 0.5%.

Oil prices declined today on a further increase in the number of active US oil rigs. According to a Baker Hughes report late on Friday, the number of rotary rigs in US rose by 10 to 351 in the previous week. This was the fourth weekly increase during the past five weeks. Brent oil prices are down 0.5% to $46.3/bbl today.

Russia and CIS area developments and market colour

The rouble weakened 0.4% against the dollar today, to 64.2. OFZs yields are marginally wider (1-2 bps) in the belly of the curve. Most CIS area Eurobond prices rose on the back of solid US payrolls data. Russian sovereign Eurobond yields declined by 1-3 bps, longer-term Kazakhstan yields are 3-4 bps tighter. Ukraine’s shorter-dated yields fell 6-9 bps, Azerbaijan 24 yields are 1 bps lower.

Russia’s central bank has increased the minimum rating requirement for inclusion into its Lombard list from В-/В3 to B+/B1 by either of three main international rating agencies, effective for future issues. This was a further liquidity tightening measure from the regulator, ahead of the anticipated switch to a liquidity surplus environment in the first half of 2017.

Inflation in Ukraine declined to 6.9% YoY in June, from 7.5% YoY in May. This was below market consensus of 7.2% representing the lowest level since May 2014. Core inflation (on official definition) dropped to 8.3% YoY, from 8.8% YoY in May 2016. Both headline and core inflation was negative in June, of -0.2% MoM and -0.1% MoM, respectively, as most categories of processed food, as well as clothing and footware registered price declines. Both headline and official core inflation are currently much lower than the central bank’s inflation target of 12% for end-2016, creating space for further cuts in the policy rate (reduced to 16.5% from 23 June).

Corporate news

The Russian state has placed a 10.9% stake in Alrosa. The price per share was set at RUB 65.0 representing a 3.8% discount to the market price at the close on Friday. The total value of the placement is estimated at RUB 52.2bn. This would make this the largest privatizaton transaction in Russia over the past two years. According to the placement’s agents, European and Russian investors each bought 35% of the issue, followed by funds from the Middle East and Asia with 25% and US investors with some 5%.

Uralkali produced 2.5mn tonnes of potash in Q2 2016, a 16.7% decline YoY compared to 3.0mn t in Q2 2015. Production in H1 2016 was 5.1mn t. The decline was driven by weak demand for potash on global markets. The company plans to produce 10.8-11.2mn t in 2016 (2015: 11.5 mn t).

Onexim has sold its stake in Uralkali. According to reports in local media, the buyer was Dmitry Lobyak, a Belarus businessman with links to Dmitry Mazepin, the largest shareholder of Uralkali and beneficiary of Uralchem. In our view, the transaction bodes well for renewed production and trading cooperation between Uralkali and Belaruskali, which would be be positive for the potash market.

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