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Norvik Research 20.10.2016

20/10/2016 15:13

Global developments

The dollar strengthened ahead of today’s ECB policy rates decision. The dollar index is up 0.3% on hawkish comments from the head of New York Fed Dudley. 10-year US treasury yields are up 1 bp at 1.75%. CSI 300 and S&P futures are slightly higher. Euro Stoxx 600 is 0.2% lower. Nikkei 225 is up 1.3%.

Oil prices rallied yesterday on inventories data. Crude oil inventories fell 5.2 mn bbl in the previous week against the API estimate of a 3.8 mn bbl drop. Brent prices jumped 2.0% yesterday and are 1.0% lower at $52.1/bbl today.

Russia and CIS area developments and market colour

Russia’s consumer demand indicators for September came out stronger than expected. Real retail sales fell 3.6% YoY, after a 5.1% YoY drop in August (market consensus was for a 4.3% YoY decline). Real wages rose 2.8% YoY after growing 2.7% in August (revised from a 1.0% YoY drop; market consensus was for a decline of 0.7% YoY). In seasonally-adjusted terms on our estimates, real wages rose 0.8% MoM in September after jumping 2.3% MoM in August. The data also point to improvement in real disposable incomes. Unemployment stayed at 5.2% in September (it decreased marginally in seasonally-adjusted terms as well, on our estimates). The renewed strength of real wages will likely reinforce the CBR’s cautious stance about room for near-term policy easing.

Russia’s inflation was steady in the week to 17 October at 0.1% WoW and is estimated to have declined to 6.3% YoY from 6.4% YoY in the previous week.

The rouble is 0.3% weaker at 62.4 against the dollar. OFZ yields are 2-6 bps tighter today after tightening 10-20 bps in the long end yesterday. Russia and Kazakhstan sovereigns 4-5 bps tighter. Ukraine-19 and Belarus-18 are tighter 8 and 20 bps respectively.

Corporate news

Polyus has placed a $500 mn Eurobond due March 2022 at 4.7%. The company earlier planned to issue a new Eurobond to refinance the existing indebtedness, including the outstanding 2020 issue. In our view, even if the company uses these funds to pay dividends, its net debt/EBITDA metrics should remain within its covenant of 3.5x.

Alrosa reduced diamond production in Q3 2016. The company produced 11.0 mn carats of diamonds in Q3 or 5.5% lower YoY (Q3 2015: 11.6 mn). Lower production was due to the following factors: 1) a decline in gravels processing at alluvial deposits due to adjustment of production plan for 2016 from 39 mn carats to 37mn carats; 2) termination of open-pit mining at Udachnaya pipe; 3) a decline in ore production at Aikhal underground mine. Despite the weak production performance, Alrosa increased sales in Q3 to 8.3 mn carats, or by 66% YoY, thanks mainly to the low base. We estimate Q3 diamond sales at $1.01 bn, an increase of 85% YoY.

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