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Norvik Research 09.12.2016

09/12/2016 17:51

Global developments

Both the euro and the Eurozone government bond prices have been under pressure after the ECB yesterday announced a scaling down of its asset-purchases program after March 2017. The market focused on the ECB’s plan to cut monthly bond purchases from €80bn to €60bn and downplayed the longer-than-expected program’s extension (until end-2017) and lifting of some existing restrictions on buying shorter-dated bonds. 10-year German Bunds yields rose 4 bps at 0.38%. Euro lost 1.3% against the dollar yesterday and is down a further 0.4% today at 1.057. Euro Stoxx 600 is up 0.4% today after rising 1.2% yesterday. S&P 500 futures are flat after the index rose 0.2% to a fresh high. Nikkei 225 rose 1.4% while CSI 300 is up 0.7%. The dollar index is up 0.3% after a 0.9% jump yesterday.

Oil prices are rising ahead of OPEC’s meeting this weekend. Representatives of 9 countries (including Russia, Kazakhstan and Azerbaijan from among the CIS states) will be present at the meeting. Brent prices are up 0.3% at $54.1/bbl.

Russia and CIS area developments and market colour

A senior CBR official has sought to downplay the good inflation data for November and spoke of positive surprises from the recent high-frequency indicators. The head of research department Morozov expected no policy reaction to inflation’s modest deviations from the target level once the target has been met. He also stressed the significance of a budget rule (now expected to be restored in 2018) for avoiding the rouble’s exchange rate volatility. These comments support no change in policy rates at the 16 December meeting.

Ukraine’s central bank left its policy rate unchanged at yesterday’s meeting, in line with market consensus. The pause in policy easing (after 400 bps of cuts since late April) followed the spike in headline inflation to 12.4% YoY in October. The NBU attributed the need for caution to the forthcoming sharp increase in minimum wage (next year), the “high probability” of further delays in disbursement of external official assistance and the upward pressures on the exchange rate due to higher political tensions. The NBU said it expects to resume policy easing next year once risks to policy stability decline.

Ukraine’s inflation moderated to 12.1% YoY in November, from 12.4% in October. The further increase in utility prices, to 47.2% YoY from 44.4%, was offset by a large drop in food and beverages (to 3.4% YoY from 4.9% YoY in October). Officially measured core inflation eased to 6.2% YoY, from 6.5% in the previous month.

The rouble is 0.1% lower at 63.8 against the dollar. OFZ yields are 2-5 bps lower. Russia and Kazakhstan longer-term sovereign Eurobond yields are 1-2 bps tighter. Ukraine sovereign bonds are 3-7 bps tighter.

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