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Norvik Research 14.10.2016

14/10/2016 13:45

Global developments

Equity markets have been supported by positive data from China. China’s producer prices came out 0.1% YoY higher in September, the first annual increase since January 2012. Nikkei 225 rose 0.5%, CSI 300 is 0.1% higher, Stoxx 600 increased 0.8%. S&P futures are up 0.1% after the index closed 0.3% weaker yesterday. The dollar index is up 0.4% today, after a similar decrease yesterday. 10-year US treasury yields are 3 bps higher at 1.77%.

Oil prices rose on lower US oil product inventories while crude stocks rose. Distillates and gasoline inventories contracted 3.7mn and 1.9 mn bbl respectively while crude oil stocks were up by 4.9 mn bbl. Brent prices rose 0.7% to $52.4/bbl.

Russia and CIS area developments and market colour

Preliminary estimates of Russia’s balance of payments in Q3 2016 point to a further weakening of the current account surplus and higher capital outflows. The current account surplus declined to $1.9bn in Q3 2016 from $7.8bn in Q3 2015 but was higher than market consensus, of $0.2bn. On the 4-quarter rolling basis, the surplus fell to $30.5bn (2.4% of GDP) in Q3, from $36.6bn (3.0% of GDP) in Q2 2016. The pace of declines in USD export values has moderated to 10.0% YoY in Q3, from 25.7% in Q2, while import values rose by 4.6% YoY in Q3, after falling 4.4% YoY in Q2. The negative services balance narrowed to $7.2bn in Q3 2016, from $12.1bn in Q3 2015, (travel-related spending declined to $7.9bn, from $12.2bn a year ago). At the same time, net private capital outflows increased to $2.6bn in Q3 ($19.4bn on the 4-quarter basis) from -$0.9bn ($13.5bn) in Q2 (adjusted for CBR’s operations with liquidity).

The rouble is slightly stronger today at 62.9. Longer-dated OFZ yields are marginally wider today. Russia and Kazakhstan sovereigns are 2-3 bps and 4-5 bps tighter today, respectively. Ukraine-19, Azerbaijan-25 are Armenia-24 are all 1-2 bps tighter.

Corporate news

NLMK reduced steel production in Q3 2016 while sales increased. Crude steel output declined by 4% QoQ and 1% YoY to 4.04 mn t. Capacity utilization was down to 94% (Q2 2016: 98%), mainly due to planned repairs at the Lipetsk site. At the same time, sales performance was strong: the group’s sales increased by 7% QoQ to a record high of 4.22 mn t. Sales of finished products increased by 8% QoQ to 2.78 mn t, sales of semi-finished steel products rose by 6% QoQ. Sales to local markets represented 66% of total sales (down 1 pp QoQ).

Russia’s Tatfondbank plans a new Eurobond issue. The new issue has been assigned “B” credit rating by S&P. The bank has not announced parameters of the deal yet. We expect the yield to be in the range of 7%-9% depending on the maturity of the issue.

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