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Norvik Research 16.09.2016

16/09/2016 17:13

Global developments

Stock markets in Europe are down on lower oil prices and a large US claim against Deutsche Bank. Euro Stoxx is off 0.5% and DAX fell 1% following the bank’s disclosure that the US Department of Justice is seeking $14bn to settle its probe into mortgage-base securities. Yesterday’s US data on retail sales and industrial production were considerably weaker than expected. The dollar index is up 0.6%. The US 10y yields are lower 1 bp to 1.68% today. S&P futures are 0.2 lower after the index closed 1.0% higher yesterday. Euro Stoxx 600 is down 0.3%. The Bloomberg commodity index is 0.3% lower.

Oil prices contracted on speculations about a rising global crude glut. Brent prices are down 2.1% today at $45.6/bbl after rising 1.6% to $46.6/bbl yesterday.

Russia and CIS area developments and market colour

Russia’s central bank cut its key rate by 50 bps today, to 10.0%, while ruling out another round of policy easing until Q1 or Q2 2017. The tone of the policy statement was considerably more hawkish than the market had reasons to expect given the significant declines in both inflation and inflation expectations. Specifically, the CBR estimates that in seasonally-adjusted terms, the pace of inflation in recent months was “elevated”. The CBR has reiterated its end-2017 inflation target of 4.0%, based on a $40/bbl oil price assumption.

Ukraine’s government has submitted a draft budget for 2017 with a 3% of GDP deficit to parliament yesterday, meeting a key commitment to the IMF. Ukraine counts on another IMF tranche (based on end-September data) later this year, of $1.3bn, and expects the IMF mission to return to the country soon.

The rouble weakened 0.4% today at 65.0 against the dollar. OFZ yields are 1-5 bp tighter today after widening 5-8 bp yesterday. Russia and Kazakhstan longer term yields are 1 bp tighter and 2-3 bp wider respectively. Ukraine sovereign yields are 1- 3bps tighter today in the morning with Ukraine 19 yield tightening 5 bp to 7.70%.

Corporate news

The final yield target on Global Ports Eurobond has been reduced to 6.625%. The initial pricing range, of 6.75-7.00%, was reduced due to strong demand (in excess of $1 bn). The new notes will have maturity of seven years and principal amount of $350 mn. Funds will be used to refinance existing indebtedness including a $265 mn loan from VTB Bank (Austria). In our view, the placement shows strong interest of foreign investors in the Russian corporate credit space, which should help to secure demand for other issues. We note that some of these transactions are already in their final stages (O1 Properties, Bank Otkritie).

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