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Norvik Research 08.09.2016

08/09/2016 14:58

Global developments

European bond yields fell further ahead of today’s ECB policy meeting. ECB will announce its decisions at 11.45 GMT followed by Draghi’s press conference at 12.30 GMT. The dollar index is down a further 0.3% today, EURUSD is 0.3% stronger at 1.127. S&P futures are flat. Euro Stoxx 600 is up 0.1%. China trade data for August were strong: imports grew 1.5% YoY in USD terms, for the first time since October 2014; exports fell 2.8% YoY versus consensus of -4.0%. China’s CSI 300 is little changed, Nikkei 225 is down 0.3%.

Oil prices rose following an unexpectedly large drop in US crude inventories. The American Petroleum Institute reported yesterday that the US crude oil stocks fell 12.1 mn bbl in the previous week. Brent prices rose 1.5% today to 48.7/bbl after a similar increase yesterday.

Russia and CIS area developments and market colour

Weekly inflation in Russia stayed at zero in the week to 5 September, unchanged from the previous week. On our estimates, headline inflation declined to 6.7% YoY from 6.9% YoY in August. In view of the relatively high base period inflation in September 2015 (0.6% MoM), there is scope for further declines in headline inflation this month, supporting a case for a policy rate cut.

The IMF Board will review progress of Ukraine’s program on 14 September. Ukrainian officials earlier expected the forthcoming IMF disbursement to be around $1 bn. Conclusion of the current review should unlock further official aid, including $1 bn of credit guarantees from the US and €1.2 bn from the EU.

The rouble is up 0.4% today at 63.9 against the dollar. OFZ yields tightened 6-9 bps yesterday and a further 5-8 bps today, with longer-dated yields down to 8%. Most CIS area sovereign Eurobond yields declined further: longer-dated securities of Russia, Kazakhstan and Ukraine’s tightened 2 bps, 3-4 bps and 2-7 bps respectively yesterday. Azerbaijan-24, and Armenia-25 yields edged lower by 1 bp while Belarus-18 widened 4 bps.

Corporate news

O1 Properties, a commercial property developer focusing on central Moscow, plans to issue a Eurobond. The company recently received a B1 rating from Moody’s which cited risks related to “elevated leverage profile with a high reliance on secured debt” and “single-market concentration in Moscow particularly amid the current challenging economic environment in Russia”. In our view a successful placement by O1 would confirm exceptionally favorable external environment for Russian borrowers, including of low credit quality.

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