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Norvik Research 20.09.2016

20/09/2016 18:18

Global developments

The dollar and longer-dated US Treasuries are marginally stronger ahead of tomorrow’s BoJ and Fed policy decisions. The market-implied probability of a Fed hike tomorrow stands at 22%, from 34% at the start of September, even though at least two large market players have warned that bond markets are complacent about the risk of Fed action tomorrow. The dollar index is up 0.1%. The US 10y yields are 3 bps lower at 1.68%, 30-year are 4bps lower. Stock markets in Europe and S&P futures are higher today, after both CSI 300 and Nikkei 225 fell 0.2%. Bloomberg commodity index is 0.1% lower.

Oil prices are falling on concerns about a rising global glut. Oil output in Nigeria is reportedly recovering from the fields earlier affected by clashes. Brent prices are down 1.6% at $45.2/bbl. Crude inventories are projected to have increased by 3 mn bbl in the previous week.

Russia and CIS area developments and market colour

Russia’s consumer demand indicators for August came out weaker than expected, July data revised downwards. Real retail sales fell 5.1% YoY in August after a 5.2% YoY drop in July, revised from 5.0% drop (market consensus was for a 4.9% YoY decline). Real wages fell 1.0% YoY after contracting 1.3% in July (revised from a 0.6% YoY increase; market consensus was for an increase of 0.8% YoY). The improvement in real wages observed earlier this year is no longer evident in the revised series. The data also point to renewed weakness in real disposable incomes. Unemployment eased to 5.2% in August from 5.3% in July (it decreased marginally in seasonally-adjusted terms as well, on our estimates). Overall, industrial output remains the sole bright spot in recent data, while demand-side indicators disappointed.

The rouble weakened 0.4% today to 64.9 against the dollar. OFZ yields are rising 10-20 bp in the belly after widening 2-10 bp yesterday on the CBR’s hawkish stance. Russia and Kazakhstan longer term yields are flat today. Ukraine’s short-dated sovereign yields are 2-3 bp wider today, Ukraine 27 yield tightened 14 bps to 8.17%. Azerbaijan-24 and Belarus-18 are 2 and 1 bp tighter, Armenia-25 is flat.

Corporate news

Russian Railways announced a tender offer to buy back two Eurobond issues. The issues affected are $1.5 bn notes due 2017 and CHF 525 mn notes due 2018. The company will issue a new USD Eurobond to finance the buyback and may also issue RUB Eurobond depending on market situation. These plans indicate continuation of the pattern for Russian top-tier borrowers to tap the Eurobond market to refinance debts due 2017-2018. In our view, the key reason behind this decision is the expected near-term increase in US rates.

O1 Properties, a Russian property developer, will issue a 5-year Eurobond. The coupon guidance is for 8.5%; the size may exceed $300 mn.

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Norvik Banka Research
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research@norvikuk.com

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