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Norvik Research 22.11.2016

22/11/2016 18:23

Global developments

Stock markets and commodities continue to rally in anticipation of pro-growth policy mix in the US. S&P rose 0.8% yesterday to a fresh all-time high; S&P futures are up 0.2% today. Asian stock markets are rising: CSI 300 is up 0.8% while Nikkei 225 is up 0.3%. Euro Stoxx 600 is higher 0.5%. Bloomberg commodity index jumped 2.2% yesterday and is 0.6% higher today led by oil. Probability of a Fed interest rate hike in December is now fully priced by the market. Yields on 10-year US treasuries fell 1 bps to 2.31%. The dollar index is down 0.1%. EURUSD is marginally weaker at 1.062.

Oil prices jumped 3.5% yesterday on positive sentiment regarding OPEC’s output deal and are 0.7% up today. Nigeria’s envoy was the latest OPEC representative to confirm that delegates are aiming for a deal on the basis of the agreement reached in Algeria, namely a proportional 1.6% output cut for each OPEC member country except Libya, Nigeria and Iran. Crude oil inventories in the US are projected to have increased by 0.3 mn bbl in the previous week.

Russia and CIS area developments and market colour

Ukraine’s Finance Minister Danilyuk stated yesterday that the country’s need in the next IMF tranche “is not acute”. This comment followed the conclusion of the IMF mission without recommending a $1.3bn disbursement. The mission’s statement said that “the authorities need more time to ensure medium-term fiscal sustainability” including adoption of 2017 budget consistent with program targets, and tackling corruption. The IMF pointed out to signs of recovery projecting GDP growth of 1.5% YoY in 2016 and about 2.5% YoY in 2017. We believe that the IMF’s essential requirements for the next tranche include adoption of the 2017 budget consistent with overall deficit within 3.1% of GDP, reflecting the recently adopted increases in minimum wages, adoption of a new stage of pension reform, anti-corruption measures and meeting the agreed quantitative fiscal and monetary targets. Implementation of a number of reforms, in particular of the pension system, cannot indeed be taken for granted this year. The failure to receive the $1.3bn tranche would only affect the end-year level of external reserves (at $16bn now) but not put macro stability at risk, in our view.

The rouble is little changed on the day at 63.8 against the dollar following oil prices dynamics. OFZ yields tightened slightly yesterday and are mixed today. Russia and Kazakhstan longer-term sovereign Eurobond yields are 1-2 and 7-8 bps tighter today. Ukraine Eurobond yields are 3-7 bps tighter. Azerbaijan-24 and Armenia-25 are 9 and 3 bps tighter respectively.

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