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Norvik Research 11.11.2016

11/11/2016 17:23

Global developments

Expectations of protectionist policies by the US under the new administration and the strengthening dollar have put emerging markets stocks, bonds and currencies under pressure. A spike in US treasury yields over the past couple of days has led to aggressive unwinding of carry-trade positions in developing markets. Yields on 10-year US treasuries rose a further 15 bps yesterday to 2.15%. Yields on 30-year bonds are at 2.94% after climbing 23 bps over the past couple of days. MSCI emerging markets equity index dropped 0.5% yesterday after falling 2.5% the day before. MSCI emerging markets currency index fell 1.0% yesterday after a 0.7% drop the day before. S&P futures are down 0.3%, Euro Stoxx is down 0.4%, Nikkei 225 is 0.3% higher while China’s CSI is up 0.8%. The dollar index is flat today after rising some 1% over the past couple of days. The pound sterling has been the main beneficiary of the volatility, gaining 0.7% today to 1.264. Bloomberg commodity index is 0.1% higher while gold price is down 0.2%. Copper is up 5.5% today gaining over 15% since the beginning of the week.

Oil prices declined amid evidence of higher OPEC output. Iran (which is seeking an exemption from OPEC’s deal on production curbs) has increased output by 0.21 mn bbl in October. Brent prices are down 1.5% on the day at $45.1/bbl.

Russia and CIS area developments and market colour

The rouble weakened 0.2% to 65.8 against the dollar. OFZ yields widened by up to 5 bps in the short end and up to 15 bps in the longer part of the curve, extending yesterday’s sell-off. The OFZ yield curve flattened and is now upward sloping. Yields on CIS Eurobonds have been boosted by the sell-off in US and European government debt. Russia and Kazakhstan longer-term sovereign Eurobond yields are about 15-17 bps and 27-29 bps wider today respectively after widening about 13-15 bps yesterday. Ukraine Eurobonds yields are 12-13 bps wider today.

Corporate news

Eurochem published weak Q3 2016 results. Eurochem’s EBITDA in Q3 fell 47% YoY to $230mn from $438mn a year earlier. Over the first 9 months, EBITDA contracted 33% YoY from $1.2bn in 2015 to $0.81bn in 2016. EBITDA margin declined to 25% in Q3 2016 from 35% in the previous year. Total revenue in Q3 2016 was down 6% YoY to $1.05bn on the back of lower prices despite the 12% growth in sales volumes. Net debt totaled $3.35bn as of 30 September. Earlier the company announced plans to raise a perpetual interest-free loan in the amount of up to $1.5bn from its main shareholder (Melnichenko) in Q4 2016.

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