On the eve of the US presidential elections, risk appetite rebounded following the last-minute decision by the FBI to close its inquiry into Clinton’s handling of her official electronic correspondence. The most recent opinion polls, conducted before the latest FBI announcement, give Clinton a narrow lead over Trump both nationwide and in most battleground states. The dollar index is 0.7% above Friday’s close, having declined 1.5% over the previous week. The US nonfarm payrolls increase in October, of 161K, was below market consensus for +173K but large net positive revisions over the past couple of month and a pick-up in wage growth to a fresh 7-year high leave a December Fed hike firmly on the table, in our view. 10-year US treasury yields rose 4 bps today to 1.81% from 1.77% on Friday. Euro Stoxx 600 is 1.2% higher. CSI is marginally higher while Nikkei 225 jumped 1.7%. Gold in down 1.3%.
China reported the largest monthly drop in FX reserves in October since January, of $46bn (1.5%). The yuan fell 0.3% (offshore rate fell 0.2%) after a cut in the reference rate. The Bloomberg commodity index is up 0.7%.
Oil prices are rising after OPEC Secretary General stated that Russia is “on board” with an agreement to curb output. Baker Hughes rotary rigs number increased by 9 to 450 in the previous week. Brent prices are up 1.0% today at $46.0/bbl after falling about 2% on Friday.
Russia and CIS area developments and market colour
Russia’s inflation in October declined to 6.1% YoY, from 6.4% in September. The outturn was better than market consensus (6.3%) and consistent with weekly data. Officially measured core inflation fell to 6.4% YoY from 6.7% in September. Food price inflation fell to 5.7% YoY from 5.9% while non-food goods inflation fell to 7.0% from 7.5%. Inflation dynamics appear to have benefited from the strength of the exchange rate. The gap between headline inflation and the key rate (10.0%) is now close to 400 bps while the CBR is set to keep rates on hold until Q1 2017 at the earliest.
RUBUSD is 1.2% stronger from Friday at 63.7. OFZ yields are 2-10 bps tighter today. Russia and Kazakhstan longer-term sovereigns are 1-3 bps tighter, respectively. Ukraine sovereign yields are 2-5 bps tighter.
MMK increased net profit in Q3 2016. MMK’s net profit in Q3 2016 totalled $417mn, up 26.7% QoQ. In the first nine months of the year, the company’s net income was $903mn (+65.4% YoY). Q3 revenue fell 5% QoQ to $1.5bn due to lower sales volumes. The EBITDA margin improved to 44.2% from 36.1% in Q2 due to disposal of Fortesque Metals Group shares.
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