Yellen’s testimony has cemented market expectations for an interest rate hike in December further boosting the dollar and bond yields. The Fed Chair told lawmakers yesterday that FOMC was close to lifting rates again while stressing that the state of the economy still warrants only gradual tightening. US CPI for October came out at 1.6% YoY, in line with consensus, while housing starts data and initial jobless claims were much stronger than expected. The implied probability of a December hike rose to 96% yesterday. Yields on 10-year US treasuries rose 8 bps yesterday to 2.30% and are down 2 bps today. The dollar index is up 0.2% today, after a 0.7% jump yesterday. The euro weakened a further 0.1% to 1.062 shrugging off yesterday’s warning from an ECB official about a possible withdrawal of its asset-purchase program and the slight increase in Eurozone inflation in October, to 0.5% YoY, from 0.4% in September. S&P closed 0.5% higher yesterday, just 0.3% below its all-time high, S&P futures are flat today. Euro Stoxx 600 is down 0.2%, CSI 300 is down 0.6% while Nikkei 225 is up 0.7%.
Oil prices are higher despite the dollar’s strength. Saudi Arabia’s energy minister said he is optimistic on a deal to cut output. Iraq and Iran are likely to be excluded from a deal to cut output and will be expected to freeze output at current levels. Brent prices are up 0.3% at $46.6/bbl.
Russia and CIS area developments and market colour
The rouble is 0.4% stronger today at 64.6 against the dollar. OFZ yields widened by 3-12 bps today. Russia and Kazakhstan longer-term sovereign Eurobond yields are about 7-8 and 6-7 bps wider today, respectively. Ukraine Eurobond yields are 12-15 bps wider, while Ukraine -19 is about 30 bps wider at 8.77%. Azerbaijan-24 and Belarus-18 are 1 and 18 bps tighter after widening 4 and 7 bps yesterday.
MTS reported Q3 results above expectations. Revenue in Q3 declined 1.3% YoY to RUB 112.2bn, in line with forecasts. Adjusted OIBDA was down 5% YoY to RUB 45.7bn exceeding consensus-forecast by 4 p.p. OIBDA margin declined by 1.6 p.p. to 40.7%. Net income is lower by 13% YoY to RUB 12.6bn. The company’s management affirmed the forecast for a 2-3% revenue growth and a 4% OIBDA decline in 2016. The company also plans to stop expanding its retail chain (the number of outlets approached 6,000) taking into account rising competition in the retail mobile market. Net debt as of the end of Q3 is RUB 172bn while net debt/12m OIBTA is 1.1x.
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