Norvik Research 27.01.2017

27/01/2017 18:25

Global developments

Government bond yields, the dollar and oil prices corrected lower following the release of weaker-than-expected US GDP data. The initial estimate for Q4 2016 GDP point to a decline in growth to 1.9%, from 3.5% in Q3, compared to the 2.2% consensus forecast. Growth was held back be the strongest drag from trade since Q2 2010 while non-residential fixed investment was at a 5-quarter high. The early 2017 US growth indicators were strong however, with Markit Services PMI in January rising to 55.1 against consensus forecast of 54.4. Yields on 10-year UST fell 3bps to 2.49% following the GDP data, while 10-year Bund yields dropped 2 bps to 0.46%.

The dollar index corrected 0.4% lower and is down 0.2% on the day. The pound is 0.2% weaker against the dollar ahead of the first meeting between the leaders of the US and the UK. Gold prices are down a further 0.3% today. S&P 500 futures are marginally higher today. EuroStoxx 600 is 0.3% lower. Asian stocks are higher: Nikkei 225 is up 0.3% and China’s CSI 300 up 0.4%.

Oil prices are 1.4% lower at $55.4/bbl (Brent) in the wake of weak US GDP data. Algeria’s Energy Minister said today that oil producers are due to reach 1.8 mn bbl/day output reduction target already next month.

Russia and CIS area developments and market colour

Ukraine’s central bank yesterday kept its key policy rate unchanged at 14.0%, having revised its 2017 inflation and GDP growth forecast. In its press statement accompanying the widely anticipated decision, the NBU warned of higher inflation pressures as a result of a hike in the minimum wage since the beginning of the year and associated improvement in consumer demand, as well as the hryvnia’s weakening in late 2016-early 2017. The NBU has revised its end-2017 inflation forecast from 8.0% YoY to 9.1% (closer to our own latest forecast of 9.0%) and its full-year 2017 GDP growth forecast from 2.5% to 2.8% (which looks optimistic to us). New forecasts are due to be detailed in the NBU’s inflation report on 2 February.

RUBUSD is 0.9% stronger today, recouping most of yesterday’s losses as the initial reaction to FX interventions news faded. OFZ yields are 4-7 bps lower today after a turnaround yesterday afternoon. Russia’s Eurobond yields are 4-5 bps tighter today, Ukraine yields are 2-5 bps lower.

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