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Norvik Research 02.12.2016

02/12/2016 19:22

Global developments

Today’s labour market data out of the US helped alleviate market concerns about a near-term increase in the pace of Fed policy rate normalization. The monthly increase in nonfarm payrolls in November, by 178K, was marginally below the 180K consensus, with minimal downward revisions for the preceding two months. Unemployment level fell sharply from 4.9% to a 9-year low of 4.6%, due in part to lower workforce. The pace of wage increases unexpectedly slowed to 2.5% YoY, from 2.8% earlier. The mixed and broadly weaker than expected data came as a relief for fixed income markets, after a period of heavy losses. Yields on 10-year UST dropped 5 bps to 2.38%.

US PMI data for November exceeded expectations. Markit manufacturing PMI rose to 54.1 from 53.9 in September versus consensus of 53.9. ISM manufacturing came out at 53.2 in November after 51.9 in September and consensus of 52.5.

China’s official PMI data were stronger than expected. PMI for November came out at 51.7 against consensus of 51.0, higher than in September (51.2). Markit (Caixin) PMI data for November was 50.9, slightly lower than consensus of 51.0 and September’s reading of 51.2.

Oil prices rose slightly further today. Russia is expected to prepare details of production cuts for its oil companies by the time of the meeting in Doha late last week. Russia’s current output of 11.2 mn bbl/day is to be cut by 0.3 mn bbl/day (or by 2.7%), and Energy Minister Novak said yesterday that the same ratio for cutting output would apply to all Russian oil companies, regardless of size. Brent prices are 0.4% up today at 54.1 after rising a further 4.5% yesterday.

Russia and CIS area developments and market colour

The rouble is 0.3% stronger at 63.8 against the dollar. OFZ yields are broadly flat today, after tightening around 6 bps yesterday. Russia and Kazakhstan longer-term sovereign Eurobond yields are 1 bp tighter and 3-4 bps wider today respectively. Belarus-18 is 13 bps tighter while Armenia-25 is 2 bps wider.

Russia would welcome any contacts with Ukraine regarding settlement of the $3bn debt. Finance Minister Siluanov specified that such contacts have to be “constructive” and not based on the Ukraine’s earlier suggestion that Russia accepts the same terms that were offered to commercial creditors. Ahead of a planned UK court deliberation on the issue in January 2017, these comments suggest that Russia is still open for a possible amicable resolution of the issue.

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