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Norvik Research 01.12.2016

01/12/2016 19:21

Global developments

Oil prices jumped by about 10% yesterday and a further 3.5% today as OPEC finally reached an agreement on cutting output. Yesterday OPEC officials announced a new production target of 32.5 mn bbl/day corresponding to 1.2 mn bbl/day reduction, to be distributed among most member states. The OPEC deal assumes that non-OPEC countries reduce output by 0.6 mn bbl/day. Surprisingly, Russia agreed to cut output 0.3 mn bbl/day over H1 2017, having earlier offered only to freeze output. OPEC plans to hold talks with non-OPEC members next week in Doha, with attention now shifting to implementation.

Global oil surplus on IEA data was 1.12 mn bbl/day in Q1 2016 and 0.13mn bbl/day in Q2 2016. In a scenario of full implementation of the deal by both OPEC and non-OPEC producers (that remains doubtful, in our view), oil prices (Brent) would likely stay in a narrow range of $50-55/bbl, with further upside limited by a likely increase in output from US shale producers.

Eurozone area unemployment fell to 9.8% in November, a 7-year low. This was considerably better than the 10.0% consensus. Combined with the elevated PMI level of 53.7 (the highest since early 2014), the data point to continuing gradual improvement in the region’s economic performance.

US treasury yields rose further ahead of the release of labour market data tomorrow. Market consensus is for monthly increase in non-farm payrolls of 180K. 10-year US Treasury yields are up 6 bps to 2.44%. S&P futures declined 0.3% yesterday even though energy sector stocks jumped 4.8% following the OPEC deal. The dollar index rose 0.6% yesterday and is 0.2% lower today.

Russia and CIS area developments and market colour

Russia’s manufacturing PMI showed further strength in November. The index rose to 53.6 from 52.4 in October (market consensus was for 51.5 increase). The output (57.8, after 55.7) and new orders (56.5, after 54.7) components saw the largest gains. New export orders still pointed to a contraction in seasonally-adjusted terms, however.

Russia’s weekly inflation declined to 0.1% from 0.2% in the previous week. In annual terms inflation fell from 6.0% YoY to 5.9% YoY, on our estimates.

The rouble is 0.4% stronger at 63.9 against the dollar. OFZ yields are 3-10bps tighter today. Russia and Kazakhstan longer-term sovereign Eurobond yields are 3-5 bps wider today on fresh UST sell-off. Belarus-18 is 12 bps tighter.

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