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Norvik Research 17.02.2017

17/02/2017 19:30

Global developments

Risk aversion is rising against the backdrop of higher uncertainty about the outcome of the French presidential elections. Reports about a potential alliance between the extreme left and leftist candidates (Melenchon and Hamon) point to a higher risk that a populist candidate may join Le Pen in the second round. Yields on French 10-year bonds are up 2 bps on yesterday’s close at 1.04%. Equity and commodity markets are down across the board, with S&P 0.2% weaker after a similar drop yesterday. EuroStoxx600 is down 0.4%. Both Nikkei 225 and CSI 300 are 0.6% lower. The dollar index is up 0.4% today. Gold is up 0.9% at $1,240/Koz.

Oil prices are down 0.6% today (Brent), marking the first weekly decline in five weeks. US crude inventories reached a 30-year high last week.

Russia and CIS area developments and market colour

Comments by Russia’s Economy Minister confirmed expectations that the government has become uncomfortable with the rouble’s recent strength. Oreshkin today predicted that the rouble will depreciate in the near term and stabilize thereafter, warning that the government will react promptly in case of the currency’s further appreciation. This was the first specific indication from a senior official about the government’s exchange rate preferences besides the budget’s average exchange rate assumption of about 65 per USD for 2017. No potential policy reaction to an “overshot” was disclosed, and the CBR maintains its view that financial stability is not a risk from a strengthening currency. These comments have prompted the rouble to weaken today and make its future performance closely linked to the direction of capital flows (as oil-related impact will be offset by MinFin’s interventions).

Russia’s PPI inflation soared to 12.7% YoY in January from 9.1% in December, on double-digit monthly increases in energy and iron ore sectors.

The rouble is 0.9% weaker at 58.1 against the dollar. OFZ yields are 2-6 bps wider today after gaining 5-12 bps yesterday. Russia’s and Kazakhstan’s longer term sovereign bonds yields are 0-1 bps wider today. Ukraine’s yield curve has steepened further, with yields on longer-dated issues 2-4 bps wider, while Ukraine-19 is 3 bps tighter. Belarus-18 is 4 bps tighter at 5.65%.

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