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Norvik Research 02.02.2017

02/02/2017 17:56

Global developments

The dollar has declined as yesterday’s FOMC statement conveyed no urgency among Fed directors to tighten policy. FOMC members noted further tightening of the labour market but reiterated the intention to raise interest rated gradually. Investor focus has now shifted to tomorrow’s US labour market data. The dollar index fell 0.5% post-FOMC and is down a further 0.3% today. EURUSD rose beyond 1.08 for the first time since mid-November. The market implied probability of a rate hike in March is unchanged at 32.0%. 10-year US Treasury yields are 1 bps lower today at 2.46%. The Bank of England upgraded its growth forecast but warned of future downside risks. The pound sterling is down 0.6% against the dollar. S&P 500 futures are up 0.3% today amid mixed corporate reports. Stock markets in Europe are marginally higher. Nikkei 225 is lower 1.4%. Gold prices gained about 0.9%

Oil prices are rising on evidence of declining output by key exporters, despite the large inventory build-up in the US. OPEC produces cut output by 840K bbl/day in January, according to a Bloomberg survey. Russia’s output declined by 100K bbl/day to 11.1 mn bbl/day in January. The EIA data showed US crude oil inventories up by 6.5 mn bbl in the previous week, the highest weekly increase since end-October. Brent prices jumped 2.0% yesterday and are 1.2% higher today at $57.2/bbl.

Russia and CIS area developments and market colour

Russia’s central bank is widely expected to leave its key policy rate unchanged at 10.0% at its meeting tomorrow. This view (that we share) is due in part to the uncertainty stemming from a possible weakening of the rouble on the back of the planned FX interventions. We expect the CBR to state that the start of interventions (expected on 7 February) will on balance be neutral for RUB and monetary policy outlook. Daily intervention volumes for the period of 5 February - 6 March are due to be announced by 9.00 GMT tomorrow.

The rouble is nearly 1% stronger at 59.7 against the dollar. OFZ yields are 3-8 bps lower today after tightening up to 5 bps yesterday. Russia’s and Kazakhstan’s longer term sovereign bonds yields are 3-4 bps and 1-2 bps tighter today respectively. Ukraine sovereign yields are 5-10 bps wider today while Belarus-18 is flat.

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