US stocks and the dollar rose while Treasuries fell in response to Fed Chair Yellen’s robust assessment of the US economy in her semiannual report to the Congress. Markets have interpreted Yellen’s comments as hawkish after she noted that further policy adjustment would be needed even if inflation and employment levels rise gradually. Both 2-year and 10-year UST yields are up 3 bps after steeper initial spikes, at 1.23% and 2.47%, respectively. Market-implied probability of a rate hike in March rose 4 pp to 34%. The dollar index rose 0.3%. S&P 500 is up 0.4% to a new all-time high, as are several other indices. The Euro Stoxx 600 is marginally higher. In China, CSI 300 was flat after January CPI and particularly PPI increases exceeded expectations. Gold price is up 0.3%.
Brent prices are 0.5% up at $55.9/bbl on continuing optimism over OPEC’s ability to achieve the agreed output cuts.
Russia and CIS area developments and market colour
Russia’s federal budget deficit widened significantly in January, due to a sharp increase in spending. On our estimates, on a 12-month rolling basis, budget deficit rose to 4.1% of GDP, from 3.6% of GDP in December. Total revenue as a share of GDP was unchanged at 16.0% as non-hydrocarbon receipts rose from 5.7% of GDP in December to 5.8% of GDP in January. At the same time, expenditure rose sharply to 20.1% of GDP, from 19.6% in January. This increase in spending was much higher than implied by earlier estimates of the impact of one-off pension payments last month (0.2% of annualized GDP). The surge in spending does not conform to the government’s decision (in late January) to save all of this year’s oil-related revenue windfall in the Reserve Fund. We expect spending to moderate in the remainder of the year, thanks to the adopted fiscal rule.
The rouble is 0.9% stronger today at 57.4 supported by rising oil prices. OFZ dynamics is mixed today despite the rouble’s strength. Russia’s longer term sovereign bonds yields are 1-2 bps wider, Kazakhstan is marginally lower. Ukraine sovereign yields are 7-10 bps tighter.
For more information on the research, please click here.
Norvik Banka Research
+44 207 259 8854
+371 6701 1561
This report is prepared by Norvik Banka UK Limited, of 46-48 Grosvenor Gardens, London, SW1W 0EB, United Kingdom (hereinafter referred to as the Company) as a marketing communication for information purposes only. Neither the information nor any opinion contained in this report (notwithstanding the source) is intended to be, or should be construed as an offer, a recommendation, an advice or an invitation to make an offer, to buy or sell any financial instrument. Information contained in this report constitutes neither investment nor tax advice and it does not take into account the specific investment objectives, risk appetite and financial situation of anyone who may receive this report. Investors should seek their own advice regarding the appropriateness of investing in any financial instrument discussed in this report and carefully evaluate the risks and eventual losses that are related to the investment services and its compliance with their investment goals.
Investors should note that any income derived from investments in financial instruments may fluctuate and that the price or value of securities and investments may rise or fall. Accordingly, investors may lose their investment or receive back less than originally invested. Past performance and income is not a guide to future performance and income. Foreign currency exchange rates may adversely affect the value, price or income of any security or related investment mentioned in this report. Investing in the Russian or CIS economies and securities involves a high degree of risk and requires appropriate knowledge and experience.
The information contained in this report have been obtained from such public sources what are believed to be reliable, but no representation or warranty is made by the Company with regard to accuracy. Therefore the information contained herein is subject to change without prior notice.
This report should not be viewed as the only source of information, and neither the Company, nor the companies within the NORVIK group and/or any affiliates or employees thereof accept any responsibility or liability whatsoever for any direct or indirect damage arising out of or in any way connected with the use of information contained herein, nor for its authenticity.
This report may not be distributed, copied, reproduced or changed without prior written consent from the Company. Further information, which for the avoidance of doubt cannot be treated as the recommendations and/or advice either, may be obtained from the Company upon request.
This report has not been prepared on the basis of the requirements of regulatory provisions promoting independence of investment research and is not subject to the prohibition from making transactions before disseminating investment research.
Norvik Banka Research is a Trading Name of Norvik Banka UK Ltd, which is Authorised and Regulated by the Financial Conduct Authority, FRN: 681329. Registered in England and Wales with number 08940522. Registered Office: 46/48 Grosvenor Gardens 1st Floor, London, SW1W 0EB.
The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful.
This email has been scanned for viruses and malware, and may have been automatically archived by Mimecast Ltd, an innovator in Software as a Service (SaaS) for business. Providing a safer and more useful place for your human generated data. Specializing in; Security, archiving and compliance. To find out more Click Here.