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Norvik Research 22.09.2016

22/09/2016 14:26

Global developments

Asset prices globally are enjoying strong support after the Fed left rates on hold yesterday and indicated its readiness for just one hike by year-end. FOMC members have lowered their projections for interest rates, inflation and GDP growth. Median projections for federal funds for end-2016 fell from 0.9% in June to 0.6% and for end-2017 from 1.6% to 1.1%. The lower range of longer-term rates forecast declined to 2.5%, from 2.8% previously. GDP growth forecast for this year has been scaled down to 1.8% from 2.0% in June. S&P closed 1.0% up yesterday, Euro Stoxx 600 is 1.2% higher from Tuesday’s close. Chinese CSI 300 added 0.8%. The dollar index is down 0.5% today after falling 0.4% yesterday. The US 10y yields were 3 bp lower yesterday and are 1 bp lower today at 1.65%. Bloomberg commodity index is 0.6% stronger.

Oil prices jumped on positive inventories data and the weaker dollar. EIA reported that crude oil inventories in the US fell by 6.2 mn bbl (in line with API data). Brent prices are up 2.9% from Tuesday’s close at $47.2/bbl.

Russia and CIS area developments and market colour

Russia has announced a tap of its 10-year Eurobonds for up to $1.25bn. Indicative price is 106.0 with yield of 3.99%, down from 4.75% at the initial issuance in May.

Weekly inflation in Russia increased to 0.1% WoW in the week to 19 September, from zero in the previous week. On our estimates, headline inflation declined to 6.5% YoY from 6.6% YoY in the previous week.

IMF has published its Article IV report on Belarus. The Fund has issued several recommendations for the government, which include implementation of a reform strategy for state-owned enterprises to increase their efficiency, measures to achieve full cost recovery in the utility sector by end-2018, improve the business environment and enhance product market competition.

The IMF noted that some fiscal easing is possible in the near term to stimulate economy, however in the mid-term gradual fiscal consolidation measures will be needed to reduce public debt. Earlier Belarus authorities requested a $3.0 bn program. We note the relatively “soft” stance of the IMF making such cooperation a distinct possibility, in our view. Belarus will have to pay down $2.3 bn of debt and $0.8 bn in interest in 2017 thus additional external financing is vital to ensure financial stability.

The rouble was 1.3% stronger yesterday and is now at 63.9 against the dollar. OFZ yields are lower 6-12 bp today after tightening 11-18 bp in the longer end yesterday. CIS Eurobonds are rallying today on the Fed’s decision: Russia and Kazakhstan longer term yields are 12-14 bp tighter today, Ukraine is 6-12 bp tighter, while Belarus-18 is 9 bp tighter.

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