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Norvik Research 28.02.2017

28/02/2017 22:15

Dear recipient of Norvik Banka research,

Based on the outcome of earlier subscriber surveys and due to changes in business priorities, the format of our regular market commentaries will change, effective next month. These commentaries will be issued twice a week (on Monday and Thursday), in an extended format. We will aim to expand sections on both sovereign and corporate debt issues, with a particular focus on securities with a potential for significant price changes. In the meantime, you can find our latest strategy views on the markets in the attached report.

Global developments

The dollar is lower after the release of weaker-than-expected US data. US GDP growth in Q4 was 1.9% QoQ, in line with the initial estimate and below 2.1% consensus. Growth in Q4 was driven by consumer demand while net exports and non-residential fixed investment were a drag on growth. Q4 deflator was also below expectations, thus the data provided no evidence of strong inflationary pressures. Market-implied probability of an interest rate hike in March stayed at 50%, following a jump from 40% late last week following hawkish comments from a senior Fed official. The dollar index is down 0.3% while 10-year US Treasury yields are little changed at 2.35%. Global stock indices, including S&P 500, are broadly flat ahead of Trump’s state of the union address tonight. Iron ore prices are 1% lower today. Gold prices are up 0.3%.

Oil prices are sliding as OPEC output rose in February. A consultancy report estimated that higher output by Angola, Saudi Arabia and Ecuador have led to an increase in OPEC’s average daily output this month by 55 thousand b/d to 32.245 mn b/d. Oil prices (Brent) are 0.9% lower at $55.4/bbl.

Russia and CIS area developments and market colour

Russia expects a ruling from a UK high court on Ukraine’s failure to repay the $3bn Eurobond in 2015 between 16 April and 1 May. According to deputy finance minister Storchak, the judge will decide whether accelerated proceedings need to be followed (as demanded by Russia) or the issues needs to be looked into in substance and not just form (as Ukraine wants). The latter scenario currently appears the more likely outcome which would see proceedings dragging on at least for several more months.

Media reports about an imminent resignation by Ukraine’s central bank Governor have been refuted by the NBU (but not Ms Gontareva herself). Local news outlets claim that the Governor is frustrated with the slow pace of reforms and has told the President of her intention to step down. Multilateral creditors and investors would want to see a capable and politically neutral successor to Gontareva in case of her departure, in order to be confident that the central bank remains committed to sound monetary and regulatory policy.

The rouble is 0.6% weaker today at 58.5 versus USD. OFZ yields are 3-7 bps higher. Russia’s and Kazakhstan’s Eurobond yields are slightly higher.

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