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Norvik Research 08.02.2017

08/02/2017 18:56

Global developments

Yields on government bonds in Europe and the US have declined as risk aversion persists. 10-year US Treasury yields are down 5 bps at 2.34%. German bunds rallied, with 10-year yields falling 6 bps to 0.30%. Yields on 10-year French and Italian government bonds are down 1bp and 4 bps today at 1.09% and 2.32%, respectively. The dollar index is down 0.3% today reversing earlier gains. S&P 500 futures are marginally lower, European stock markets are down across the board. Nikkei 225 and CSI 300 both rose 0.5% today. Gold prices are up 0.7% today at $1,242 per ounce.

Oil prices today recovered some of yesterday’s losses following reports that OPEC producers may extend output cuts into H2 2017. API data point to a jump in crude oil inventories of 14.2 mn bbl in the previous week. Brent prices are up 0.5% today at $54.8/bbl after a 2.3% drop yesterday.

Russia and CIS area developments and market colour

Ukraine’s inflation rose modestly in January, in line with market expectations. Consumer price inflation accelerated to 12.6% YoY from 12.4% YoY in December. Food price inflation slowed to 3.0% YoY from 3.3%, transportation services prices rose by 14.9% YoY (versus 11.4% YoY in December), utility price inflation stayed very high while easing marginally to 46.6% YoY from 47.2% at end-2016. Given the strengthening of the hryvnia since the beginning of the year, inflation is likely to peak in Q1 2017 at about 14% YoY and decline towards 9% YoY by year-end (the central bank’s latest inflation projection for end-2017 is 9.1% YoY). Barring fresh volatility in the foreign exchange market, the central bank is likely to resume policy easing in Q2 2017, in our view.

Alexei Navalny, Russia’s prominent opposition activist, has been found guilty of embezzlement by a local court. Navalny vowed to appeal the resulting ban to run in next year’s presidential elections in the constitutional court.

The rouble is 0.5% stronger today at 59.2 against the dollar. OFZ yields are slightly lower in the back of the curve today after widening 5-7 bps yesterday. Russia’s and Kazakhstan’s longer term sovereign bonds yields are 1bp tighter today, Ukraine’s longer-dated sovereign yields are 2-3 bps tighter.

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